Question

17) The IS curve will shift when which of the following occurs? A) a reduction in output.
C) a reduction in consumersʹ confidence.

B) a reduction in interest rate. D) a reduction in money supply.

18. 18) When a liquidity trap situation exists, the most appropriate policy to increase output would be
    A) a central bank purchase of bonds. B) an increase in government purchase. C) a central bank sale of bonds. D) none of the above

19. 19) Which of the following will cause the money multiplier to become smaller?
    A) an increase in the publicʹs preference for checking deposits as opposed to holding currency

    B) an increase in the ratio of reserves to checkable deposits C) an increase in high powered money
    D) a reduction in high powered money

    E) none of the above

20. 20) When a customer withdraws money from her checking account at a commercial bank, the bankʹs assets ________ and its liabilities ________.

    A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase

Answer 1

a) "C"

A reduction in the consumer confidence will shift the IS curve.

b) "B"

an increase in the government purchases will shift the output in case of liquidity trap in the market.

c) "A"

Public holding more money in the market will decrease the money multiplier in the market.

d) this will decrease the cash that is an asset and it will also decrease the liability, the answer is "C".