Question

8) If the deficit is financed by selling bonds to the ________, the money supply will ________, increasing aggregate demand, and leading to a rise in the price level.

A) public; rise

B) public; fall

C) central bank; rise

D) central bank; fall

9) Keynes's theory of the demand for money implies that velocity is

A) not constant but fluctuates with movements in interest rates.

B) not constant but fluctuates with movements in the price level.

C) not constant but fluctuates with movements in the time of year.

D) a constant.

10) Keynes's liquidity preference theory indicates that the demand for money is ________ related to ________.

A) negatively; interest rates

B) positively; interest rates

C) negatively; income

D) negatively; wealth

11) The exchange rate is

A) the price of one currency relative to gold. ECON 350 Assignment 5, Spring, 2020 cont’d P a g e | 3

B) the value of a currency relative to inflation.

C) the change in the value of money over time.

D) the price of one currency relative to another.

12) When the value of the British pound changes from $1.50 to $1.25, then the pound has ________ and the U.S. dollar has ________.

A) appreciated; appreciated

B) depreciated; appreciated

C) appreciated; depreciated

D) depreciated; depreciated

13) Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive.

A) more; less

B) more; more

C) less; less

D) less; more

14) ________ in the expected future domestic exchange rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant.

A) An increase; appreciate

B) An increase; depreciate

C) A decrease; appreciate

D) A decrease; depreciate

15) Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________.

A) increase; appreciate

B) decrease; appreciate

C) increase; depreciate

D) decrease; depreciate

Answer 1

8. Option C

When the deficit is financed, the money supply increases which increases the aggregate demand.

9. Option A

Velocity of money is the number of times the money gets rotated, which would vary with the interest rate.

10. Option A

The demand for money is inversely related to interest rate.

11. Option D

It is the number of currencies needed to exchange for another currency.

12. Option B

As the purchasing power dollar increases and pound decreases

13. Option D

When a currency appreciates a nation can buy more of foreign goods and less of exports

14. Option A

15. Option D