1. According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then the interest rate will
1. Increase and the quantity of money demanded will increase.
2. Increase and the quantity of money demanded will decrease.
3. Decrease and the quantity of money demanded will increase.
4. Decrease and the quantity of money demanded will decrease.
2. Fiscal policy makers are working to increase Aggregate Demand to the greatest extent they can. They have $100 Billion dollars at their disposal. If the Marginal Propensity to Consume is 2/3, then ceteris paribus, the most appropriate policy recommendation these individuals can and must make would be:
1. Cut taxes by $100 Billion
2. Reduce net exports by $100 Billion
3. Increase the Money Supply by $100 Billion.
4. Increase Government Purchases by $100 Billion