Please help with these questions. MACROECONOMICS Practice Questions. Multiple Ch
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Question
Please help with these questions.
MACROECONOMICS Practice Questions. Multiple Choice EC 2010-002 VALI 2017 ey market is initially in equilibrium lnie i ed Swser. , c discount rate Suppose the mon and buys bonds on the open market, then a the money supply will increase and the interest rate will se b. the money supply will increase and the imterest rate will tall c. the money supply will decrease and the interest rate will ise d. the money supply will decrease and the interest rate wl tal I. The short run impact of the Fed pursuing an expansionary monctary poliey is a. an increase in interest rates and an increase in spending b. an increase in interest rates and a decrease in spending c. a decrease in interest rates and an increase in spending d. a decrease in interest rates and a decrease in spending 2. 3. If the Fed sells government bonds in the open markct a. money demand will shift to the right, causing interest rates to rise b. money demand will shift to the left. causing interest rates to fall c. moncy supply will shift to the right, causing interest rates to fall d. money supply will shift to the left, causing interest rates to risc relationship between the The demand-for-money curve illustrates the quantity demanded of money and a inverse; the interest rate b. direct: GDP c. direct, the interest rate d. inverse; GDP 4.Explanation / Answer
Answer 1:- b) The money supply will increase and interest rate will fall.
Discount rate is the minimum interest rate on which FED lends money to other banks. Thus if it is reduced, money will be available to banks at cheaper interest rates. Also by buying bonds money supply will increase as banks will get extra liquidity by the sale of bonds to Fed. Due to increased money supply, interest rates will decrease. As the supply of money will increase.
Answer 2:- c) a decrease in interest rate and increase in spending.
By pursuing an expansionery monetary policy the Fed increases the money supply in the market. Due to increase in money supply, interest rates fall. Also increase in money supply increases spending as people have more money due to increased money supply.
Answer 3:- d) money supply curve will shift to left, causing interest rates to rise.
When Fed sells bonds in the money market, commercial banks buy it and they pay the amount to the Fed. This reduces the money supply, and money supply curve shifts to left. Due to decrease in money supply interest rates rises.
Answer 4:- a) inverse; the interest rate.
The demand for money curve shows the relationship between the quantity of money demanded and the interest rates given. This relationship is inverse; i.e., when the interest rates on money are high, quantity demanded of money reduces and vice versa.
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