Question :
21) In the liquidity preference framework, a one-time increase in : 1373671
21) In the liquidity preference framework, a one-time increase in the money supply results in a price level effect. The maximum impact of the price level effect on interest rates occurs
A) at the moment the price level hits its peak (stops rising) because both the price level and expected inflation effects are at work.
B) immediately after the price level begins to rise, because both the price level and expected inflation effects are at work.
C) at the moment the expected inflation rate hits its peak.
D) at the moment the inflation rate hits it peak.
22) Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is the
A) liquidity effect.
B) income effect.
C) price level effect.
D) expected inflation effect.
23) It is possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation.
A) fall; liquidity
B) fall; risk
C) rise; liquidity
D) rise; risk
24) When the growth rate of the money supply increases, interest rates end up being permanently lower if
A) the liquidity effect is larger than the other effects.
B) there is fast adjustment of expected inflation.
C) there is slow adjustment of expected inflation.
D) the expected inflation effect is larger than the liquidity effect.
25) When the growth rate of the money supply is increased, interest rates will fall immediately if the liquidity effect is ________ than the other money supply effects and there is ________ adjustment of expected inflation.
A) larger; fast
B) larger; slow
C) smaller; slow
D) smaller; fast
26) If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if
A) there is fast adjustment of expected inflation.
B) there is slow adjustment of expected inflation.
C) the liquidity effect is smaller than the expected inflation effect.
D) the liquidity effect is larger than the other effects.
27) If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the
A) interest rate will fall.
B) interest rate will rise.
C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth.
D) interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.
28) If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the
A) interest rate will fall.
B) interest rate will rise.
C) interest rate will fall immediately below the initial level when the money supply grows.
D) interest rate will rise immediately above the initial level when the money supply grows.
29) In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the
A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.
30) In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the
A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.
B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation.
C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.
D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
