Question Details

The aggregate demand curve is downward sloping because a higher price level 



1. According to the modern quantity theory of money an increase in the money supply will result in an increase in the nominal level of income until 
a) velocity is unchanged b) the interest rate returns to its original level 
c) the demand for money rises by exactly the increase in the money supply 
d) the price level increases by the same percentage as the money supply has increased 
2. The central bank and the government are working against each other if, as the government cuts taxes the central bank 
a) sells government bonds b) lowers the discount rate 
c) increases the money supply d) decreases the legal reserve requirements 
3. A major advantage of monetary over fiscal policy is that monetary policy 
a) can be put into effect more quickly b) affects all sectors of the economy equally 
c) authorities are quicker to see the need for policy 
d) has a more direct and predictable impact on spending 
4. Knowledge of the money supply can lead to good predictions of nominal GDP only 
a) if the price level is stable b) if the money supply is stable 
c) over very short periods of time d) if the determinants of velocity are known 
5. The aggregate demand curve is downward sloping because a higher price level  
a) makes people wealthier and so they spend more 
b) causes higher wages and so people spend more 
c) cuts the real value of income and so people spend less 
d) decreases the real supply of money, decreasing spending




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