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Positive and Negative Shocks on Money Markets Quiz

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Positive and Negative Shocks on Money Markets Quiz

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Questions and Answers

How do changes in the money supply typically affect?

Inflation

Aggregate supply

Interest rates (correct)

Aggregate demand

What do central banks primarily influence through monetary policy adjustments?

Real output

Interest rates (correct)

Government spending

Market prices

What may happen if the velocity of money is low according to the text?

Higher interest rates

Expansionary monetary policy

Increased inflation

Liquidity trap (correct)

How can a liquidity trap be defined?

When people prefer cash over bonds due to low interest rates Signup and view all the answers

What does the Quantity Theory of Money relate changes in the money supply to?

Inflation Signup and view all the answers

What happens if a central bank increases the money supply according to the text?

Possibly higher inflation Signup and view all the answers

What is the primary impact of a positive supply shock in the money market?

Decrease interest rates Signup and view all the answers

In the Loanable Funds market, what happens when there is a negative demand shock?

Interest rates decrease Signup and view all the answers

What is the relationship between productivity and interest rates in the Loanable Funds market?

Decrease in productivity leads to lower interest rates Signup and view all the answers

How does a decrease in the supply of money affect interest rates in the money market?

Increase interest rates Signup and view all the answers

What effect does a positive demand shock have on the Loanable Funds market?

Increase interest rates and quantity of loans Signup and view all the answers

How are loanable funds represented on a market graph?

Y-axis represents real interest rate Signup and view all the answers

What factors influence the supply in the loanable funds market?

Wealth of individuals, expectations of future income and prices Signup and view all the answers

How does a negative supply shock affect the loanable funds market?

Increases interest rates and quantity of loans Signup and view all the answers

What does the growth gap represent?

The difference between current GDP and potential output Signup and view all the answers

Which variables influence the demand in the loanable funds market?

National public and private investment Signup and view all the answers

What is the relationship between AD shifting to the right and economic recovery in the growth gap?

GDP output increases, inflation increases slightly Signup and view all the answers

In the context of the money market, what is the nominal interest rate associated with?

Money market interest rate Signup and view all the answers