Suppose That a Sharp Downturn in the Price of a Country's

question 124

Multiple Choice

Suppose that a sharp downturn in the price of a country's prime manufacturing product results in a terrible recession and a massive decline in the general income level of the citizens.Other things constant, what would be the recession's most probable effect on money demand in the country?

• A)People will hold more money for any purpose, resulting in a decline in money demand.
• B)Local M1 money demand will rise.
• C)The transactions demand for money will fall such that the quantity of money demanded will be lower at any given interest rate level.
• D)The speculative demand for money will fall, causing a downward movement along the money demand curve.
• E)The precautionary demand for money will increase, causing an upward shift in the money demand curve.

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Definitions:

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A theory suggesting that productivity can increase over time as individuals or organizations gain experience and efficiency in a process through repetition.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers, usually downward-sloping to indicate that demand decreases as price increases.

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The supply curve is a graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing and able to supply in the market.