Question

true or false

1. THE DEMAND FOR MONEY DECREASES THE HIGHER THE DEBT INTEREST RATE.

2. DISCOUNT RATE IS DEALS WITH LOANS FROM THE FEDERAL RESERVE TO BANKS.

3. PRICE AND Qd ARE INVERSELY PROPORTIONAL FOR THE LAW OF DEMAND.

4. THE LAW OF DEMAND CURVE SHOWS BEHAVIOR OF CUSTOMERS AS IT RELATES TO PRICE AND Qd.

5. WHEN PRICE GOES WAY UP FOR MARKET EQUILIBRIUM, A MAJOR SURPLUS OCCURS.

Answer 1

First is TRUE. Money demand decreases when bank charges higher interest rate on loans because people will be less willing to take expensive loans as a result they would invest less.

Second is TRUE. Federal discount rate is the rate at which federal bank provides loans to the commercial banks.

Third is TRUE. The law of demand says other factors being constant when price increases demand decreases and when demand increases price decreases. So, they have inverse relationship with each other.

Fourth is TRUE. For example, WHEN law of demand curve shows that price is rising from $10 to $20 and quantity demand is decreasing from 200 to 100. It shows rational consumers behaviour of decreasing demand for that commodity.

Fifth is True. Market equilibrium occurs when quantity supply = quantity demand. Equilibrium price is the price at which goods and services supply is equal to the demand in the market. Surplus occurs when market price is above equilibrium price. Because here quantity supply will be greater than quantity demand. Hence excess supply tends to surplus.