Question

Question 8 The theory of liquidity preference implies that an increase in the price level shifts the Not yet answered Marked out of 2.00 Flag question Select one: a money demand curve to the right, so the interest rate decreases. b. money demand curve to the left, so the interest rate decreases. 0 C. money demand curve to the right, so the interest rate increases. 0 d. money demand curve to the left, so the interest rate increases. Question 9 If the marginal propensity to consume is 6/7, then the multiplier is 7. Not yet answered Marked out of 2.00 Select one: O True Flag question O False Question 10 If many firms decide to invest more in new IT systems, then Not yet answered Marked out of 2.00 P Flag question Select one: O a. aggregate demand increases, which the central bank could offset by decreasing the money supply. b. aggregate demand increases, which the central bank could offset by increasing the money supply. C. aggregate supply increases, which the central bank could offset by increasing the money supply. d. aggregate supply increases, which the central bank could offset by decreasing the money supply.

Answer 1

8. The theory of liquidity preference implies that an increase in the price level shifts the money demand curve to the right, so the interest rate increases. This is because a business expansion will increase the demand for money as interest rates are bound to increase. Thus the answer is option (c).

9. The formula for finding multiplier from Marginal Propensity to consume is 1/(1-MPC). So here, 1/(1-6/7) will give the multiplier as 7. So, it is true.

10. If many firms invest in nee IT systems then it would increase productive capacity and tgus aggregate supply will increase without causing an inflation which means the central Bank could offset by decreasing the money supply. So the answer would be option (d).