EC223 Lecture Notes - Lecture 12: Demand Curve, Price Level, Investment Advisory
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Answer: right; right: when the economy slips into a recession, normally the demand for bonds _____, the supply of bonds _____, and the interest rate _____, everything else held constant. Answer: decreases; decrease; falls: i(cid:374) ke(cid:455)(cid:374)es"s li(cid:395)uidit(cid:455) p(cid:396)efe(cid:396)e(cid:374)(cid:272)e f(cid:396)a(cid:373)e(cid:449)o(cid:396)k, i(cid:374)di(cid:448)iduals a(cid:396)e assu(cid:373)ed to hold thei(cid:396) wealth in two forms: Answer: money or bonds: i(cid:374) ke(cid:455)(cid:374)es"s li(cid:395)uidit(cid:455) p(cid:396)efe(cid:396)e(cid:374)(cid:272)e f(cid:396)a(cid:373)e(cid:449)o(cid:396)k, as the e(cid:454)pe(cid:272)ted (cid:396)etu(cid:396)(cid:374) o(cid:374) (cid:271)o(cid:374)ds increases, the expected return on money _____, causing the demand for ______ to fall. Answer: falls; money: a lower level of income causes the demand for money to _____, and the interest rate to ____; everything else held constant. Income effect of an increase in the money supply is a rise in the interest rate in response to a higher level of income. Increasing money supply is an expansionary influence on the economy, raises income and wealth.
