Question

8. 9) Which of the following is included as a component of the M2 definition of money? A) travelers check

   B) small time deposits C) checkable deposits D) all of the above

   E) none of the above

9. 10) Which of the following generally occurs when a central bank pursues contractionary monetary policy? A) the central bank sells bonds and the interest rate decreases.

   B) the central bank purchases bonds and the interest rate increases. C) the central bank sells bonds and the interest rate increases.
   D) the central bank purchases bonds and the interest rate decreases.

10. 11) Suppose the economy is operating on the IS curve but not on the LM curve. Given this information, we know that

    A) the goods market is in equilibrium and the money market is not in equilibrium.
    B) the money market and bond markets are in equilibrium and the goods market is not in equilibrium.

    C) the money, bond and goods markets are all in equilibrium.
    D) neither the money, bond, nor goods markets are in equilibrium.

    E) the money market and goods market are in equilibrium and the bond market is not in equilibrium.

11. 12) The LM curve shifts to the right when which of the following occurs? A) an increase in consumer confidence

    B) an open market sale of bonds by the central bank C) an increase in taxes
    D) an increase in output

    E) none of the above

Answer 1

a) "B"

Small time deposits will be part of M2 in the economy.

b) When the central bank sells bonds and increase the interest rate then the money supply decreases in the market i.e. the constracitonaty monetary policy. The answer is "C".

c) "A"

the good market is in equilibrium but the money market is not in the equilibrium.

d) "E"

none of the above the LM curve will shift to the right when the money supply increases.