Other things remaining the same, a decrease in the real return on bonds causes the velocity of money to:
a. Rise.
b. Fall.
c. Not change.
Question 2
Government surpluses are generally considered to be:
a. Expansionary, but they have secondary effects through the foreign exchange market that are contractionary because they tend to raise the value of the domestic currency.
b. Expansionary, but they have secondary effects through the real loanable funds market that are contractionary because they reduce the real risk-free interest rate.
c. Contractionary, but they have mild secondary effects through the real loanable funds market that are expansionary because they reduce the real risk-free interest rate.
d. Contractionary because they have primary and secondary effects that are contractionary.
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