1. According to the quantity theory of money, if velocity of money is constant, a 5...

1. According to the quantity theory of money, if velocity of money is constant, a 5 percent increase in money supply will lead to a 0.25 percent increase in nominal GDP.

a. True b. False

2. According to the equation of exchange, if the amount of money in an economy multiplied by the velocity of money equals 800 million dollars, then this economy's:

a. nominal GDP equals $800 million. b. nominal GDP equals $800 million times the price level. c. price level equals $800. d. real GDP equals $800 million. e. real GDP equals $800 million times the price level.

3. An increase in the money supply leads to a(n):

a. increase in interest rates, an increase in investment, and an increase in aggregate demand. b. decline in interest rates, an increase in investment, and an increase in aggregate demand. c. decline in interest rates, a decrease in investment, and an increase in aggregate demand. d. decline in interest rates, a decline in investment, and a decline in aggregate demand. e. decline in interest rates, an increase in investment, and a decline in aggregate demand.

4. If the quantity of money supplied exceeds the quantity of money demanded, at a point in time:

a. the equilibrium interest rate will fall. b. the money demand curve will shift to the right. c. the money demand curve will shift to the left. d. the equilibrium interest rate will fall.

Solutions

Expert Solution

1. False.

Because according to the quantity theory of money, if velocity of money is constant, a 5 percent increase in money supply will lead to a 5 percent increase in nominal GDP.

3. Option B is correct.

Decline in interest rates, an increase in investment, and an increase in aggregate demand

Because an increase in money supply will lead towards increase in the amount of money which people & firms get & they will spend more. This leads to an increase in investment & aggregate demand. As money increased money supply raises banks reserves the interests rates will fall.

4. Option a & d are correct as both are same.

The equilibrium interest rate will fall.

Because if quantity of money supplied exceeds the quantity of money demanded people will turn towards purchasing bonds which will reduce money supplied.This increased demand for bonds will push interest rates down towards equilibrium.

Rahul Sunny answered 1 year ago

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