<p>So, I’m taking this practice test that our teacher gave us along with an answer list, but the questions don’t have any explanations as to why the answers are what they are. I was hoping someone here could explain the steps to get these answers:</p>
<li><p>Which of the following will most likely occur in an economy if more money is demanded than is supplied?
(A) The amount of investment spending will increase.
(B) Interest rates will decrease.
<a href=“C”>b</a> Interest rates will increase.<a href=“D”>/b</a> The demand curve for money will shift to the left.
(E) The demand curve for money will shift to the right.</p></li>
<li><p>(For this one there’s a Keynesian AE graph with an Investment horizontal line at $100, a C+I line starting at $500 and sloping upward. The C+I line intersects the 45 degree line at $1,000, and there’s a vertical FE line drawn at $2,000. EDIT: I just found that someone posted this graph [online](<a href=“http://f5.putfile.com/5/12905505318.jpg]online[/url]”>http://f5.putfile.com/5/12905505318.jpg)</a>) The minimum increase in government spending necessary to reach full employment is
(A) $2,000
(B) $1,000
<a href=“C”>b</a> $500<a href=“D”>/b</a> $200
(E) $100</p></li>
<li><p>As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements?</p>
<ol>
<li><p>Is just because if there is too much money in circulation, the way to get it out of circulation is to raise the interest rates, and get people to invest, rather than borrow. Similarly, when people want money (liquid cash), and the Fed doesnt want them to, they raise the interest rates so people go, I can make so much more money by giving my money to the bank.</p></li>
<li><p>Takes some algebra. So the slope of 45 degree = 1. So if C+I stars at 500, and gets to 1000 and intersects the 45 degree line, its slope =1/2. So money multiplier = 1/(1-c) = 2. And to go from 1000 to 2000, you need 2 * $500.</p></li>
</ol>
<p>I was thrown for a loop because 21's graph isn't drawn to scale, so I wasn't sure if I could use (1000, 1000) as a point of intersection.</p>
<p>Our Econ teacher really hasn't taught us much this semester, so I haven't heard of those theorems of economics, but it makes sense. Hopefully I'll be able to reason things out tomorrow >_></p>
<p>1.The quantity of money versus interest rates graph has a vertical supply curve and a downward sloping demand curve. if more money is demanded than supplied, then the interest rate must increase to reach the equilibrium point.</p>
![http://f5.putfile.com/5/12905505318.jpg]online[/url]](http://f5.putfile.com/5/12905505318.jpg%5Donline%5B/url%5D){kind=link}
