Chapter 3

If there is initially

• a.excess demand for money, the interest rate falls, and if there is initially an excess supply, it rises.

• b.excess supply of money, the interest rate falls, and if there is initially an excess demand, it rises.

  
  

• c.excess supply of money, the interest rate falls, and if there is initially an excess demand, it further falls

  
  

• d.excess supply of money, the interest rate increases, and if there is initially an excess demand, it falls

An increase in

• a.real output raises the interest rate while a fall in real output lowers the interest rate, given the price level and the money supply.

• b.nominal output raises the interest rate while a fall in real output lowers the interest rate, given the price level and the money supply.

  
  

• c.real output raises the interest rate while a fall in real output lowers the interest rate, given the money supply.

  
  

• d.real output decreases the interest rate while a fall in real output increases the interest rate, given the price level.

  
  

The aggregate demand for money can be expressed by:

• a.Md = L × P(R,Y).

  
  

• b.Md = R × L(R, P)

• c.Md = P × L(R,Y).

  
  

• d.Md = R × L(R, P).

  
  

 The aggregate demand for money can be expressed by:

• a.Md = L × P(R,Y).

  
  

• b.Md = R × L(R, P).

  
  

• c.Md = P × L(R,Y).

  
  

• d.Md = R × L(R, P).

  
  

 A reduction in a country's money supply causes:

• a.its currency to depreciate in the foreign exchange market.

  
  

• b.its currency to appreciate in the foreign exchange market.

  
  

• c.does not affect its currency in the foreign market.

  
  

• d.does affect its currency in the foreign market in an ambiguous manor.

  
  

  Which one of the following statements is the most accurate?

• a.Given PUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro.

  
  

• b.Given YUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro.

  
  

• c.Given PUS and YUS, when the money supply rises, the dollar interest rate declines and the dollar appreciates against the euro.

  
  

• d.Given PUS and YUS, when the money supply rises, the dollar interest rate declines and the dollar depreciates against the euro.

  
  

 Given PUS and YUS,

• a.An increase in the European money supply causes the euro to appreciate against the dollar,

•  b.An increase in the European money supply causes the euro to appreciate against the dollar, and it creates excess demand for dollars in the U.S. money market

• c.An increase in the European money supply causes the euro to depreciate against the dollar, but it does not disturb the U.S. money market equilibrium.

  
  

• d.An increase in the European money supply causes the euro to depreciate against the dollar, and it creates excess demand for dollars in the U.S. money market.

  
  

An economy's long-run equilibrium is

• a.the equilibrium that would occur if prices were perfectly flexible.

  
  

• b.the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately to preserve full employment.

  
  

• c.the equilibrium that would occur if prices were perfectly fixed to preserve full employment.

  
  

• d.the equilibrium that would occur if prices were perfectly fixed at the full employment point.

  
  

A permanent increase in a country's money supply

• a.causes a more than proportional increase in its price level.

  
  

• b.causes a proportional increase in its price level.

  
  

• c.leaves its price level constant in long-run equilibrium.

  
  

• d.None of the above.

  
  

A change in the level of the supply of money

• a.increases the long-run values of the interest rate and real output.

• b.decreases the long-run values of the interest rate and real output.

• c.has no effect on the long-run values of the interest rate and real output.

  
  

• d.has no effect on the long-run values of real output, but may affect the interest rate.