QUESTION 4 What is an implication of the neutrality of money in the long run? O In response to any change in the money supply, the demand for money will adjust to cancel out its effects on all macroeconomic variables. O The economy's level of potential output will adjust to accommodate any change in the money supply. O In response to any change in the money supply, the economy's adjustment process will bring Y back to Y*, which is unaffected by the change in the money supply. O Changes to the money supply have no effect on either the price level or real GDP. O Changes to the money supply never have any effect on real GDP. QUESTION 5 The monetary transmission mechanism can be set in motion when a rise in the price level causes O an increased demand for money balances, leading people to buy bonds, which in turn decreases the interest rate. O a decreased demand for money balances, leading people to sell bonds, which in turn raises the interest rate. O an increased demand for money balances, leading people to sell bonds, which in turn decreases the interest rate. O a decreased demand for money balances, leading people to buy bonds, which in turn decreases the interest rate. O an increased demand for money balances, leading people to sell bonds, which in turn raises the interest rate. QUESTION 6 In the Neoclassical growth model, the law of diminishing marginal returns implies that capital accumulation leads to ever O larger increases in GDP but smaller decreases in living standards. O larger levels of unemployment but small increases in the standard of living. O larger levels of unemployment but larger increases in the standard of living. O smaller increases in GDP and average living standards. O larger decreases in GDP and large decreases in living standards. QUESTION 7 Suppose the cash drain in the banking system increases during holiday periods. As a result, O the capacity of the banking system to create deposit money is increased during holiday periods. O commercial banks decrease their target reserve ratios. O the capacity of the banking system to create deposit money is dampened during holiday periods. O the money supply will automatically increase. O changes in reserves will result in no change in deposits during holiday periods.