Exhibit 16-5 Money, investment and product markets
In Exhibit 16-5, when the money supply increases from MS1 to MS2, the equilibrium interest rate:
A. decreases from i1 to i2, decreasing investment spending from I2 to I1.
B. increases from i2 to i1, increasing investment spending from I1 to I2.
C. increases from i2 to i1, decreasing investment spending from I2 to I1.
D. decreases from i1 to i2, increasing investment spending from I1 to I2.
Answer: D
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As a monopolist expands its output:
A) the difference between the demand curve and the marginal revenue curve decreases. B) the difference between the demand curve and the marginal revenue curve increases. C) the slope of the demand curve decreases, while the slope of the marginal revenue curve increases. D) the slope of the demand curve increases, while the slope of the marginal revenue curve decreases.
Assuming the Federal Reserve is targeting the interest rate, a decrease in money demand will
a. shift the LM schedule to the right. b. shift the LM schedule to the left. c. shift the IS schedule to the right. d. not shift the LM schedule. e. none of the above.
Central banks can increase the money supply by:
a. Raising margin requirements. b. Selling government securities. c. Buying foreign exchange. d. Increasing the discount rate. e. None of the above.
In formulating fiscal policy it is necessary to specify the amount of the desired AD shift.
Answer the following statement true (T) or false (F)