Question

In: Economics

A decrease in interest rates caused by a change in the price level would cause a(n):...

  1. A decrease in interest rates caused by a change in the price level would cause a(n):

A. Decrease (or shift left) in aggregate demand

B. Increase (or shift right) in aggregate demand

C. Decrease in the quantity of real output demanded (or movement up along AD)

D. Increase in the quantity of real output demanded (or movement down along AD)

2. A decrease in expected returns on investment will most likely shift the AD curve to the:

A. Right because C will increase

B. Left because C will decrease

C. Right because I will increase

D. Left because I will decrease

3. If the national incomes of our trading partners increase, then our:

A. Aggregate demand decreases because C decreases

B. Aggregate demand increases because C increases

C. Aggregate demand decreases because net exports decrease

D. Aggregate demand increases because net exports increase

4. The upward slope of the short-run aggregate supply curve is based on the assumption that:

A. Wages and other resource prices do not respond to price level changes

B. Wages and other resource prices do respond to price level changes

C. Prices of output do not respond to price level changes

D. Prices of inputs flexible while prices of outputs are fixed

5. A consumer holds money to meet spending needs. This would be an example of the:  

A. Use of money as a measure of value

B. Use of money as legal tender

C. Liquidity demand, also known as transactions demand for money

D. Asset demand for money

6. The fundamental objective of monetary policy is to assist the economy in achieving:

A. A rapid pace of economic growth

B. A money supply which is based on the gold standard

C. A full-employment, noninflationary level of total output

D. A balanced-budget consistent with full-employment

7. The purchase and sale of government securities by the Fed is called:

A. Federal funds market

B. Open market operations

C. Money market transactions

D. Term auction facility

Solutions

Expert Solution

1.

B. Increase (or shift right) in aggregate demand.

Because at lower rate of interest people tends to borrow money yo full fill their desires. Ie. lower the interest rate, Increase and right shift in aggregate demand.

2.

D. Left because I will decrease.

Less Expected rate of return leads to less income (I) and that is most likely to shift the AD curve to left. Ie. Fall in aggregate demand.

3.

D. Aggregate demand decreases because net exports decrease

Because if the national incomes of our trading partners increases that means now they're importing less goods and mostly reliable on domestic goods(X-M), and if they prefer less imported goods then this will ultimately decrease our net exports, and if the net exports decreases that decreases Aggregate demand.

4.

A. Wages and other resource prices do not respond to price level changes.

If there's no response in wages and resources price to price level Changes it would leads to upward slope of the short-run aggregate supply curve because due to the fact that nominal wages are slow to adjust to changes in the overall price level and that would not effect on supply curve in short run.


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