QUESTION 5 Which one of the following events causes an increase in a household\'
ID: 1154179 • Letter: Q
Question
QUESTION 5
Which one of the following events causes an increase in a household's demand for money?
a..A rise in non-market economic activities carried out by the household
b.
A rise in the value of market transactions carried out by the household.
c.
A decline in non-market economic activities carried out by the household.
d.
A decline in the value of market transactions carried out by the household.
e.
None of the above.
QUESTION 6
The LM curve slopes upward because an increase in the real income
a.increases the money supply, which must be accompanied by a rise in the interest rate to encourage the public to hold more mone
.
b.helps people afford to borrow at higher interest rates.
c.
has no effect on the nominal interest rate.
d.
shifts the demand for money to the right and, given the money supply, raises the interest rate.
QUESTION 8
If the price level in an economy declines, its LM curve
a.
becomes flatter.
b.
becomes steeper.
c.
remains unchanged.
d.
may become flatter or steeper depending on the situation.
a..A rise in non-market economic activities carried out by the household
b.
A rise in the value of market transactions carried out by the household.
c.
A decline in non-market economic activities carried out by the household.
d.
A decline in the value of market transactions carried out by the household.
e.
None of the above.
Explanation / Answer
5) When the value of the market transaction is increased then people need more money for the transaction. Therefore the demand for money is increased. Option b is correct.
6) The LM curve slopes upward because an increase in the real income increases the demand for money which shifts the money demand curve upward. As money supply is constant so the interest rate is increased. Option d is correct.
8) If the price level in an economy declines, real money supply is increased. So the interest rate is decreased. People want to hold money. If income is interest sensitive then LM curve becomes flattered and if income is less sensitive then LM curve become stepper. Option d is correct.