The demand for real money balances is a function of:
a. the supply of real money balances.
b. the nominal GDP.
c. the nominal rate of interest on alternative assets and the level of real GDP.
d. policy decisions by the central bank.
Ans: c. the nominal rate of interest on alternative assets and the level of real GDP.
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Suppose that the United Kingdom pegs the pound to the euro and the European Central Bank decides to use monetary policy to offset the possible inflationary effects of European expansionary fiscal policy. How would the European Central Bank's monetary policy affect European interest rates?
A) They would rise. B) They would fall. C) The combination of the expansionary fiscal policy and the monetary policy would cause interest rates to return to their level prior to the expansionary fiscal policy. D) The combination of the expansionary fiscal policy and the monetary policy would not affect interest rates.
The above figure shows supply and demand curves for milk. In an effort to help farmers, the government passes a law that establishes a $3 per gallon price support. The loss in social welfare resulting from this price support equals
A) k + i. B) j. C) [$3 ? (Q2 - Q1)] - h. D) $3 ? k.