Empirical studies indicate that the velocity of money tends to increase when interest rates rise. Which of the following best explains why this is true?
a. When the velocity of money is high, banks will increase their lending interest rates.
b. An increase in the growth rate of GDP will cause the velocity of money to increase.
c. The higher interest rates increase the cost of holding money balances and, thereby, increase the velocity of money.
d. Both the velocity of money and interest rates will rise when the inflation rate falls.
C
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If a $2 billion increase in investment brings about a $5 billion increase in equilibrium expenditure, we know that the multiplier equals
A) 4. B) 3. C) 10. D) 5. E) 2.5.
To determine the real interest rate in the data, one should take the interest rate on government debt
A) and leave it at that. B) and add the inflation rate. C) and subtract the inflation rate. D) and divide by the inflation rate.
The marginal product of a factor of production
A) is equal to the ratio of the amount of that factor of production to the amount of output produced. B) is equal to the amount of additional output that can be produced with one additional unit of each factor input. C) is equal to the amount of additional output that can be produced with one additional unit of that factor input, holding constant the quantities of the other factor inputs. D) always exceeds the average product of that factor input, holding constant the quantities of the other factor inputs.
Bonds are considered fixed-income securities because they pay a fixed amount of interest per quarter or per year for the term of the loan.
Answer the following statement true (T) or false (F)