Money and Banking

Question 1

Price Level Effect

Answer 1

a rise in the price level causes the demand for money at each interest rate to increase and the demand curve to shift to the right

Question 2

Income Effect

Answer 2

a higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the right

Question 3

Expected-Inflation effect

Answer 3

shows an increase in interest rates because an increase in the money supply may lead people to expect a higher price level in the future (the demand curve shifts to the right).

Question 4

Price-Level effect

Answer 4

predicts an increase in the money supply leads to a rise in interest rates in response to the rise in the price level (the demand curve shifts to the right).