The liquidity preference function shows that as ________
A) real income decreases, so does the demand for real money balances
B) the nominal interest rate increases, so does the demand for real money balances
C) real income decreases, so does the real interest rate
D) all of the above
E) none of the above
A
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Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then
A) the Fed's contractionary policy will result in too small of a decrease in GDP. B) the Fed's expansionary policy will result in too small of a decrease in GDP. C) the Fed's contractionary policy will result in too large of a decrease in GDP. D) the Fed's expansionary policy will result in too large of an increase in GDP.
The real exchange rate is defined as
A) the market exchange rate adjusted for price differences. B) the purchasing power parity exchange rate. C) the exchange rate that causes interest parity to hold. D) the exchange rate that exists in major currency centers.