Question : 61) Refer to Figure 28-2. If the interest rate i2, : 1384458

61) Refer to Figure 28-2. If the interest rate is i2, the subsequent adjustment in the money market is as follows:

A) excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise.

B) MS curve will shift to the left as to maintain the interest rate at i2.

C) the interest rate will remain at i2, because the money market is in equilibrium at this interest rate.

D) excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall to i0.

E) excess supply of money leads to the sale of bonds, which in turn causes the interest rate to fall.

62) Refer to Figure 28-2. If the interest rate is i1, the subsequent adjustment in the money market is as follows:

A) excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise.

B) the MS curve will shift to the left so as to maintain the interest rate at i2.

C) the interest rate will remain at i1 because the money market is in equilibrium at this interest rate.

D) excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall.

E) excess demand for money leads to a purchase of bonds, which in turn causes the interest rate to rise.

63) Refer to Figure 28-2. Suppose the market interest rate is . The situation in this market is as follows:

A) firms and households are attempting to increase their money holdings by selling bonds.

B) firms and households are attempting to decrease their money holdings by selling bonds.

C) firms and households are attempting to increase their money holdings by buying bonds.

D) firms and households are attempting to decrease their money holdings by buying bonds.

E) the market is in equilibrium and no change will occur.

64) Refer to Figure 28-2. Suppose the market interest rate is . The situation in this market is as follows:

A) firms and households are attempting to increase their money holdings by selling bonds.

B) firms and households are attempting to decrease their money holdings by selling bonds.

C) firms and households are attempting to increase their money holdings by buying bonds.

D) firms and households are attempting to decrease their money holdings by buying bonds.

E) the market is in equilibrium and no change will occur.

65) When the price level increases, ceteris paribus, it causes households and firms to try to

A) reduce money balances, which drives interest rates down.

B) reduce money balances, which drives interest rates up.

C) reduce money balances, which drives national income up.

D) increase money balances, which drives interest rates down.

E) increase money balances, which drives interest rates up.

66) If there are just two assets, bonds and money, then an equilibrium between the supply and demand for money implies

A) an excess supply of bonds.

B) an excess demand for bonds.

C) equilibrium in the bond market.

D) an indeterminant equilibrium in the bond market.

E) nothing about conditions of demand for the other financial asset.

67) How does monetary equilibrium re-establish itself when there is an excess supply of money balances?

A) the interest rate rises

B) individuals attempt to sell bonds

C) the price of bonds falls

D) the price of bonds increases

E) the price level falls

68) The linkage between changes in monetary equilibrium and changes in aggregate demand is called the

A) monetary transmission mechanism.

B) simple multiplier.

C) equilibrium mechanism.

D) transactions mechanism.

E) liquidity preference function.

69) Other things being equal, a reduction in the money supply will lead to a

A) fall in the rate of interest and an increase in investment expenditure.

B) rise in the rate of interest and in increase in investment expenditure.

C) fall in the rate of interest and a decrease in investment expenditure.

D) rise in the rate of interest and a decrease in investment expenditure.

E) rise in the rate of interest and no change in investment expenditure.

70) The economy’s investment demand function describes the

A) positive relationship between desired investment, the rate of interest, and aggregate expenditure.

B) positive relationship between desired investment and the rate of interest.

C) negative relationship between the demand for money and the interest rate.

D) negative relationship between desired investment and aggregate expenditure.

E) negative relationship between the interest rate and desired investment.