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hw6 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve? a. the wealth effect b. the interest-rate effect c. the exchange-rate effect d. the real-wage effect 2. According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a. the price level. b. the interest rate. c. the exchange rate. d. real wealth. 3. According to liquidity preference theory, the money supply curve is a. upward sloping. b. downward sloping. c. vertical. d. horizontal. 4. When the Fed buys government bonds, the reserves of the banking system a. increase, so the money supply increases. b. increase, so the money supply decreases. c. decrease, so the money supply increases. d. decrease, so the money supply decreases. 5. Liquidity refers to a. the relation between the price and interest rate of an asset. b. the risk of an asset relative to its selling price. c. the ease with which an asset is converted into a medium of exchange. d. the sensitivity of investment spending to changes in the interest rate. 6. Which of the following is the most liquid asset? a. capital goods b. stocks and bonds with a low risk c. stocks and bonds with a high risk d. funds in a checking account 7. People own or hold money primarily because it a. has a guaranteed nominal return. b. serves as a store of value. c. can directly be used to buy goods and services. d. functions as a unit of account. 8. People are likely to want to hold more money if the interest rate a. increases making the opportunity cost of holding money rise. b. increases making the opportunity cost of holding money fall. c. decreases making the opportunity cost of holding money rise. d. decreases making the opportunity cost of holding money fall. 9. According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes a. the interest rate to fall so aggregate demand shifts right. b. the interest rate to fall so aggregate demand shifts left. c. the interest rate to rise so aggregate demand shifts right. d. the interest rate to rise so aggregate demand shifts left. For the following questions, consult the diagram below: Figure 34-1 10. Refer to Figure 34-1 . If the current interest rate is 2 percent, a. there is excess money supply. b. people will sell more bonds, which drives interest rates up. c. as the money market moves to equilibrium, people will buy more goods. d. All of the above are correct. 11. Refer to Figure 34-1 . At an interest rate of 4 percent there is excess a. money demand equal to the distance between a and b. b. money demand equal to the distance between b and c. c. money supply equal to the distance between b and a. d. money supply equal to the distance between c and b. ... View Full Document

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