Question

7. Which of the following statements is (are) correct? (x) In the market for money, as illustrated by the money market diagram, an increase in the value of money (1/P) would change the quantity of money demanded, but not the money supplied. (y) The demand for goods and services would increase when the money supply shifts rightward. (z) If the Fed bought bonds in the open market the money supply would shift rightward and the value of money would increase. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (x) only

8. Which of the following statements is (are) correct? (x) When the money market is drawn with the value of money on the vertical axis, the demand for money together with the supply of money determines the value of money (y) When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes downward, because at higher prices people want to hold more money. (z) In the money market diagram, the supply curve of money is vertical because the quantity of money supplied increases only if the Fed increases the money supply A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (z) only

9. According to the textbook, which of the following statements is (are) correct? (x) Money demand depends on the price level and the interest rate. (y) Money demand refers to how much wealth people want to hold in liquid form (z) Money demand is defined by how much currency the Federal Reserve decides to print A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (x) only

Answer 1

a) "A"

All the given statements are correct, as the demand and supply are different and supply is totally manged by the FEd that shifts the curve to the left or the right. when the interest rate is low i.e. supply shifts to the right the demand for goods in the market increase.

b) "C"

X and Z are correct statement, as the curve is downward sloping due to the interest rate and not the price

c) "B"

Only X and Y are correct as money demand depends on people and not the Fed.