Problem 1: If the Fed increases the money supply, then
a. the interest rate declines and the quantity of money demanded increases
b. the interest rate declines and the quantity of money demanded declines
c. the interest rate increases and the quantity of money demanded increases
d. the interest rate increases and the quantity of money demanded declines
e. nothing happens to the quantity of money demanded
Problem 2: An increase in the money supply causes interest rates to __________, investment spending to __________ and aggregate demand to __________.
a. rise; rise; rise
b. rise; fall; rise
c. rise; fall; fall
d. fall; rise; fall
e. fall; rise; rise
Problem 3: In an economy in which velocity is constant and the level of real output grows at an average rate of 4 percent per year, a 4 percent average rate of growth in the money supply would result in
a. a constant price level
b. a slowly increasing price level
c. a rapidly increasing price level
d. constant real GDP
e. constant nominal GDP