Question

1- A movement up the investment demand curve would result from

a: lower productivity of new technology

b: expectations of a storng economic growth

c: higher interest rates

d: a lower current income lavel for the economy

2- What would be the impact on the money supply, using an M-1 definition of money, if a $1000 deposit in a checking account were converted into a $1000 deposit in a savings account? it would :

a: remain the same because both could be converted into cash

b: increase

c: decrease

d: increase, but only if the bank has an automatic transfer service

e: remain the same, if the savings account contains less than $100,000

Answer 1

Ans:

1) Option C

higher interest rates

Investment demand curve slopes downward because as the interest rate increases demand for investment decreases.A change in the interest rate will cause a movement along the investment demand curve.Hence a higher interest rate will cause the investment demand curve to move upwards.

2) Option C

decreases

M1 includes physical currency and coin, demand deposits, checkable deposits, travelers checks and negotiable order of withdrawal (NOW) accounts.M1 decrease as checking account were converted into savings account.