42) When real GDP increases, the demand for money and the demand for money curve
ID: 1116234 • Letter: 4
Question
42) When real GDP increases, the demand for money and the demand for money curve A) increases; shifts rightward B) increases; shifts leftward C) decreases; shifts rightward D) decreases; shifts leftward B) does not change; does not shift Nominal interest rate (percent per year) Money (trillions of dollars) 43) In the above figure, a movement from point A to point B represents A) an increase in the demand for money that might be the result of an increase in real GDP. B) a decrease in the demand for money that might be the result of a fall in the price level. C) a decrease in the quantity of money demanded. D) án increase in the quantity of money demanded. E) an increase in the demand for money that might be the result of a fal in the price level. 44) In the above figure, a movement from point B to point C represents A) an increase in the demand for money that might be the result of an increase in real GDP. B) a decrease in the demand for money that might be the result of an increase in real GDP C) a decrease in the quantity of money demanded. D) an increase in the quantity of money demanded. E) an increase in the demand for money that might be the result of a fall in the price level. 45) The supply of money curve is A) upward sloping, showing the influence of the interest rate. B) horizontal because interest rates are fixed at any one moment, C) vertical because the quantity of money is fixed at any one moment D) downward sloping, showing the negative influence of the interest rate. E) horizontal because the Fed controls the quantity of money supplied.Explanation / Answer
42.
When real GDP increases in the economy, the demand for money increases and demand money curve shifts rightward.
This is because with the increase in the real GDP, there is more goods and services in the economy and people income also increases, therefore their demand for goods and services increases which leads more demand for money.
hence option A is the correct answer.
43.
As it can be seen in the diagram the movement from point A to point B, shows an increase in the quantity demand of money because if there is movement along the demand curve of money, it happens due to change in the nominal interest rate.
Hence option D is the correct answer.
44.
As it can be seen in the diagram the movement from point B to point C, shows an increase in the demand for money because with the increase in the real GDP, there is more goods and services in the economy and people income also increases, therefore their demand for goods and services increases which leads more demand for money. As a result, the money demand curve shifts rightward.
Hence option A is the correct answer.
45.
The money supply curve is a vertical line because the quantity of money supply is fixed by the Federal Reserve at any given point in time.
Hence option C is the correct answer.
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