1. Which one of the following events causes an increase in the demand for money in an economy?
a. A decline in the propensity to hold money, given the interest rate, the price level, and the real GDP.
b. An increase in the interest rate, given the price level, the real GDP, and propensity to hold money.
c. An increase in the price level, given the real GDP, the propensity to hold money, and the interest rate.
d. A reduction in the value of market transactions, given the propensity to hold money and the interest rate.
e. A rise in the average value of non-market economic activities carried out by households with no effect on market activities.
2. As the US economy recovers from the COVID-19 pandemic this year, both the aggregate real income and the price level in the country are rising. If the interest rate and the propensity to hold money remain unchanged, the demand for money in the US
a. will rise.
b. will decline.
c. will remain unchanged.
d. may rise or decline depending on the rate of interest prevailing in the economy.
e. will decline if the rise in the price level is less than the increase in the aggregate real income.
3. In 2019 in Turkey, money supply, Ms, was 2,500 trillion Turkish lira, the one-year nominal interest rate, i, was 6 percent (i = 0.06), and money market was in equilibrium, Ms = kPY/i. If at the time, the propensity to hold money was k = 0.025, what was the nominal GDP, PY, of the Turkish economy in 2019?
a. 150 trillion Turkish lira
b. 1,042 trillion Turkish lira
c. 2,500 trillion Turkish lira
d. 6,000 trillion Turkish lira
e. 41,667 trillion Turkish lira
4. In question above, suppose in 2020 Tukey’s nominal GDP and the propensity to hold money remained the same as they were in 2019. If the central bank wanted to lower the interest rate to 4 percent in 2020, how much money should it supply to the market?
a. 1,667 trillion Turkish lira
b. 1,750 trillion Turkish lira
c. 2,500 trillion Turkish lira
d. 3,750 trillion Turkish lira
e. 4,000 trillion Turkish lira
5. The LM curve shows how
a. the exchange rate is determined by real income in the money market.
b. real income is determined by the rate of interest in the money market.
c. the rate of interest in the money market is determined by real income.
d. the supply of money in the money market is determined by real income.
e. the supply of money in the money market is determined by the rate of interest.
6. The Central Bank of Russia (CBR) had kept its benchmark interest rate at around 6-8% between early 2011 and early 2020. When the COVID-19 pandemic hit Russia in 2020, CBR decided to expand money supply and to lower interest rates to help struggling firms and households. This meant that in 2020 the LM curve of Russia economy
a. must have become flatter.
b. must have become steeper.
c. must have remained unchanged.
d. may have become flatter or steeper depending on the extent of money supply increase.
7. The economy of the Eurozone is expected to experience a decrease in aggregate real income in 2021, but no change in the price level or money supply. As a result of this decrease in aggregate real income, the LM curve of the Eurozone economy
a. will become flatter.
b. will become steeper.
c. will not be affected.
d. may become flatter or steeper.