According to the theory of liquidity preference, interest rates should go up when there is a decrease in money supply.
True of False.
c) According to the theory of liquidity preference, interest rates should go up when there is a decrease in money supply.
d) Credit Cards are considered money because they are a medium of exchange.
e) Gold is an example of fiat money.
Homework Answers
c. When the money supply decreases in the loanable funds market, the equilibrium interest rate increases as the quantity of money supplied falls below the quantity of money demanded and the market adjusts towards a new equilibrium.
Ans: True
d. Credit cards are not considered money as the credit card payments are a mere tool of deferred payments or simply a loan), which needs to be settled by cash or a cheque at a later point of time.
Ans: False
e. The primary property of fiat money is that it possesses negligible intrinsic value i.e, it doesn't have any value on its own.
Gold is not fiat money as it has an intrinsic value.
Ans: False
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According to the theory of liquidity preference, interest rates should go up when there is a decrease in money supply.
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30. If there is an excess demand for money using the liquidity preference theory) A. Individual sell bonds causing interest rates to fall B. Individuals sell bonds causing interest rates to rise C. Individuals buy bond causing interest rates to fall D. Individuals buy bonds causing interest rates to rise 31. If the money demand curve shifts to the left. Interest rates ----and bond prices A. Fall; rise B. Fall; fall C. Rise; rise D. Rise;fall 32. When the growth...
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