4.) The Federal Reserve a. usually requires a substantial time to change policy

Question

4.) The Federal Reserve a. usually requires a substantial time to change policy and aggregate demand responds slowly. b. usually requires a substantial time to change policy but aggregate demand responds quickly. c. requires little time to change policy and aggregate demand responds quickly. d. requires little time to change policy but aggregate demand responds slowly. 30.) Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates? a. U.S. citizens decide to hold more foreign bonds. b. You decide to purchase a new oven for your cookie factory. c. People choose to hold more currency. d. All of the above are correct. 31.) According to liquidity preference theory, a. an increase in the interest rate increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand leftward. b. an increase in the price level increases the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand leftward. c. an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right. d. an increase in the price level reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the interest rate shifts money demand rightward. 32.) If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by a. increasing the money supply, which lowers interest rates. b. decreasing the money supply, which raises interest rates. c. increasing the money supply, which raises interest rates. d. decreasing the money supply, which lowers interest rates. 33.) People are likely to want to hold more money if the interest rate a. decreases, making the opportunity cost of holding money fall. b. decreases, making the opportunity cost of holding money rise. c. increases, making the opportunity cost of holding money fall. d. increases, making the opportunity cost of holding money rise. 34.) Which of the following statements generates the greatest amount of disagreement among economists? a. Recessions are associated with decreases in consumption, investment, and employment. b. Increases in the money supply shift aggregate demand to the right. c. Government should use fiscal policy to try to stabilize the economy. d. In the long run, increases in the money supply increase prices, but not output. 36.) Changes in the interest rate bring the money market into equilibrium according to a. liquidity preference theory, but not classical theory. b. both liquidity preference theory and classical theory. c. neither liquidity preference theory nor classical theory. d. classical theory, but not liquidity preference theory

Explanation / Answer

. b. usually requires a substantial time to change policy but aggregate demand responds quickly.

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