Question

13) An open market purchase of bonds by the central bank will cause which of the following when a liquidity trap situation exists? A) The money supply, M, will not change. B) Output will increase. C) The interest rate will decrease. D) The interest rate will not change. E) none of the above 14) Which of the following is a liability on a bankʹs balance sheet? A) loans B) checkable deposits C) reserves D) all of the above E) none of the above 2 15) Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with certainty that this combination of policies must cause A) an increase in the interest rate (i). B) a reduction in i. C) an increase in output (Y). D) a reduction in Y. 16) The interest rate will increase as a result of which of the following events? A) a reduction in income. B) an open market purchase of bonds by the central bank. C) an increase in income. D) all of the above. E) none of the above. 17) The IS curve will shift when which of the following occurs? A) a reduction in output. C) a reduction in consumersʹ confidence. B) a reduction in interest rate. D) a reduction in money supply.

Answer 1

a) "D"

When there is liquidity trap in the market the interest rate will not change in the market.

b) "B"

only checkable deposits are liability in the banks balance sheets.

c) "C"

it will certainly increase the output in the market.

d) "C"

An increase in the income will increase the interest rate in the market as the money demand will increase.

e) "C"

A reducton in consumer confidence will shift the IS curve.