QUESTION 1

1. Which one of the following events causes adecreasein a household's demand for money?

a. A decline in the rate of interest.

b. A rise in the household's propensity to hold money.

c. Increases in the real income and expenditure of the household.

d. A reduction in the value of market transactions the household expects to carry out.

e. A rise in the average value of non-market economic activities carried out by the household with no effect on market activities

QUESTION 2

1. As the Canadian economy begins to recover from the COVID-19 pandemic, many economists expect both the aggregate real income and price level in the country to rise later this year. If the interest rate and the propensity to hold money remain unchanged, the demand for money in Canada

a. will decline if the increase in the price level is greater than the increase in the aggregate real income.

b. may rise or decline depending on the rate of interest prevailing in the economy.

c. will remain unchanged.

d. will decline.

e. will rise.

QUESTION 3

1. The LM curve

a. shows how the level of real income determines the rate of interest in the money market.

b. shows how the rate of interest determines the level of real income in the money market.

c. shows how the level of real income determines the money supply in the money market.

d. shows how the rate of interest determines the money supply in the money market.

e. shows how the level of real income determines the exchange rate in the money market.

QUESTION 4

1. The Reserve Bank of Australia (RBA) had kept its benchmark interest rate at the all-time low of 0.10% since November 2020. With recovery from the COVID-19 pandemic underway, RBA expects real incomes to rise. To prevent the price level from rising, RBA plans to reduce the country's money supply this year. This means that if RBA succeeds in keeping the price level constant, compared to last year, the LM curve this year

a. will be flatter.

b. will be steeper.

c. will remained unchanged.

d. may be flatter or steeper depending on the extent of money supply increase.

QUESTION 5

1. The Economic and Monetary Union of the European Union (EMU), a subset of the countries of the European Union which utilize the same currency (the Euro), is expected to experience an increase in aggregate real income in 2021, but no change in the price level or money supply. As a result of this increase in aggregate real income, the LM curve of the EMU economy

a. will become flatter.

b. will become steeper.

c. will not be affected.

d. may become flatter or steeper.