In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to ________, everything else held constant.

Changes in Equilibrium Interest Rates in the Liquidity Preference Framework
1) In the Keynesian liquidity preference framework, an increase in the interest rate causes the
demand curve for money to ________, everything else held constant.
A) shift right
B) shift left
C) stay where it is
D) invert
Answer: C
Ques Status: Previous Edition
2) A lower level of income causes the demand for money to ________ and the interest rate to
________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
Answer: A
Ques Status: Previous Edition

3) When real income ________, the demand curve for money shifts to the ________ and the interest
rate ________, everything else held constant.
A) falls; right; rises
B) rises; right; rises
C) falls; left; rises
D) rises; left; rises
Answer: B
Ques Status: Previous Edition
4) A business cycle expansion increases income, causing money demand to ________ and interest
rates to ________, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: A
Ques Status: Previous Edition
5) In the Keynesian liquidity preference framework, a rise in the price level causes the demand for
money to ________ and the demand curve to shift to the ________, everything else held
constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
Answer: B
Ques Status: Previous Edition
6) When the price level ________, the demand curve for money shifts to the ________ and the
interest rate ________, everything else held constant.
A) falls; left; falls
B) rises; right; falls
C) falls; left; rises
D) rises; right; rises
Answer: D
Ques Status: Previous Edition
7) A rise in the price level causes the demand for money to ________ and the interest rate to
________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
Answer: D
Ques Status: Previous Edition

8) When the price level falls, the ________ curve for nominal money ________, and interest rates
________, everything else held constant.
A) demand; decreases; fall
B) demand; increases; rise
C) supply; increases; rise
D) supply; decreases; fall
Answer: A
Ques Status: Previous Edition
9) A decline in the expected inflation rate causes the demand for money to ________ and the
demand curve to shift to the ________, everything else held constant.
A) decrease; right
B) decrease; left
C) increase; right
D) increase; left
Answer: B
Ques Status: Previous Edition
10) When the Fed decreases the money stock, the money supply curve shifts to the ________ and the
interest rate ________, everything else held constant.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
Answer: D
Ques Status: Previous Edition
11) When the Fed ________ the money stock, the money supply curve shifts to the ________ and the
interest rate ________, everything else held constant.
A) decreases; right; rises
B) increases; right; falls
C) decreases; left; falls
D) increases; left; rises
Answer: B
Ques Status: Previous Edition
12) ________ in the money supply creates excess ________ money, causing interest rates to
________, everything else held constant.
A) A decrease; demand for; rise
B) An increase; demand for; fall
C) An increase; supply of; rise
D) A decrease; supply of; fall
Answer: A
Ques Status: Previous Edition

13) ________ in the money supply creates excess demand for ________, causing interest rates to
________, everything else held constant.
A) An increase; money; rise
B) An increase; bonds; fall
C) A decrease; bonds; rise
D) A decrease; money; fall
Answer: B
Ques Status: Previous Edition
14) When the price level falls, the ________ curve for nominal money ________, and interest rates
________, everything else held constant.
A) demand; decreases; fall
B) demand; increases; rise
C) supply; increases; rise
D) supply; decreases; fall
Answer: A
Ques Status: Previous Edition

15) In the figure above, one factor not responsible for the decline in the demand for money is
A) a decline the price level.
B) a decline in income.
C) an increase in income.
D) a decline in the expected inflation rate.
Answer: C
Ques Status: Previous Edition
16) In the figure above, the decrease in the interest rate from i1 to i2 can be explained by
A) a decrease in money growth.
B) a decline in the expected price level.
C) an increase in income.
D) an increase in the expected price level.
Answer: B
Ques Status: Previous Edition

17) In the figure above, the factor responsible for the decline in the interest rate is
A) a decline the price level.
B) a decline in income.
C) an increase in the money supply.
D) a decline in the expected inflation rate.
Answer: C
Ques Status: Previous Edition
18) In the figure above, the decrease in the interest rate from i1 to i2 can be explained by
A) a decrease in money growth.
B) an increase in money growth.
C) a decline in the expected price level.
D) an increase in income.
Answer: B
Ques Status: Previous Edition