According to the liquidity-preference theory, how does an increase in the price level affect the interest rate?

a. It increases the money demand and the interest rate.

b. It lowers the money demand and the interest rate.

c. It lowers the money demand and increases the interest rate.

d. It increases the money demand and lowers the interest rate.

How do open-market bond purchases by the central bank affect the price level and real GDP?

a. They increase the price level and real GDP.

b. They increase the price level and decrease real GDP.

c. They decrease the price level and real GDP.

d. They decrease the price level and increase real GDP.

When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?

a. The opportunity cost of holding money increases, so the quantity of money demanded increases.

b. The opportunity cost of holding money decreases, so the quantity of money demanded decreases.

c. The opportunity cost of holding money decreases, so the quantity of money demanded increases.

d. The opportunity cost of holding money increases, so the quantity of money demanded decreases.

If a central bank targets the interest rate, what does this imply?

a. The central bank must decrease the money supply if the interest rate is above its target.

b. The central bank can then set the money supply at whatever value it wants.

c. The central bank must increase the money supply if the interest rate is above its target.

d. The central bank must not change the money supply.

Which of the following shifts aggregate demand to the right?

a. a decrease in interest rates

b. a decrease in the price level

c. an increase in the bank rate

d. a decrease in the money supply