Use the following to answer question 49 Figure: Money Market I Interest rate, r

Question

Use the following to answer question 49 Figure: Money Market I Interest rate, r TH Equilibrium Equilibrium intereste rate ML Quantity of money MH 49. (Figure: Money Market I) Refer to the information in the figure Money Market I. If the money market is initially in equilibrium at point E and the central bank sells bonds, then the interest rate will A) move toward point H B) move toward point L C) remain at point E D) shift rightward 50. Monetary policy affects the equilibrium level of Real GDP and the equilibrium Price Level by shifting A) Aggregate Demand. B) Short Run Aggregate Supply. C) Long Run Aggregate Supply D) Money Demand.

Explanation / Answer

49.

When the central bank sells bonds that means there is a decline in the quantity of money in the economy.

And as a result interest rate tends to increase.

So, in this case, the correct answer is

A) move towards point H.

50.

Monetary policy affects the equilibrium level of Real GDP and the equilibrium price level by shifting:

A) aggregate demand.

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