Explain the relationship between interest rates and the demand for money, as described by the Keynesians
According to the Keynesians, there is an inverse relationship between the interest rate and the quantity of
money people demand. This is because the interest rate is the opportunity cost of holding money. When the
interest rate rises, the opportunity cost of holding money rises, inducing people to hold their assets in the
form of nonactive money such as interest-bearing notes, bills, or CDs. When the interest rate falls, the
opportunity cost of holding money falls and people are more inclined to hold money in order to speculate
on future interest rate increases.
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In the United States during the 1930s
A) government spending decreased and taxes increased, resulting in a fiscal contraction. B) government spending and taxes both decreased, resulting in a net fiscal contraction. C) government spending increased and taxes decreased, resulting in a fiscal expansion. D) government spending and taxes both increased, resulting in zero net fiscal expansion.
In response to an unanticipated easing of monetary policy, the Fed funds rate ________ at first, then ________ after 6 to 12 months
A) rises; returns most of the way to its original value B) falls; returns most of the way to its original value C) remains roughly unchanged; rises significantly D) remains roughly unchanged; falls significantly
A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5 . Eleven sellers are also willing to sell at the same prices. If the market maker decides to only make one transaction what is his profit/bid-ask margin
a. $8 b. $10 c. $12 d. $16
John Maynard Keynes believed that the equilibrium level of national income is primarily determined by aggregate expenditures
Indicate whether the statement is true or false