Question 1

The transaction demand for money depends on

Accepted Answer

A)  the money supply.
B)  the price level.
C)  bond prices.
D)  the interest rate.

Question 2

Assume the one-year interest rate on a bond is 8% and the expected one-year rate a year from now is 12%.According to the expectations theory of the term structure of interest rates,the two-year rate will be

Accepted Answer

A)  8%.
B)  10%.
C)  12%.
D)  22%.

Question 3

The average monthly balance in Yolanda's bank account is $1,800.Yolanda spends the same amount of money each day during a 30-day month,and at the end of the month her account balance is $0.Yolanda spends her money at a constant rate of ________ per day.

Accepted Answer

A)  $60
B)  $120
C)  $180
D)  $360

Question 4

Refer to the information provided in Figure 11.1 below to answer the questions that follow.  Figure 11.1
-Refer to Figure 11.1.A movement from Point B to Point A can be caused by

Accepted Answer

A)  a decrease in income.
B)  an increase in the price level.
C)  a decrease in the interest rate.
D)  an increase in the interest rate.

Question 5

Which of the following leads to a decrease in the interest rate?

Accepted Answer

A)  an increase in the price level
B)  a sale of government securities by the Fed
C)  an increase in nominal aggregate output
D)  a decrease in the required reserve ratio

Question 6

Refer to the information provided in Figure 11.1 below to answer the questions that follow.  Figure 11.1
-Refer to Figure 11.1.All of the following events can cause a movement from Point E to Point A EXCEPT

Accepted Answer

A)  an increase in the aggregate price level.
B)  an increase in the nominal aggregate output.
C)  a decrease in the interest rate.
D)  an increase in real output and income.

Question 7

A shortage of money in the money market can be eliminated through

Accepted Answer

A)  an increase in nominal aggregate output.
B)  an increase in the price level.
C)  a decrease in interest rates.
D)  an increase in money supply.

Question 8

Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate?

Accepted Answer

A)  the sale of government securities by the Federal Reserve and an increase in nominal aggregate output
B)  a decrease in the discount rate and an increase in the level of nominal aggregate output
C)  the purchase of government securities by the Federal Reserve and a decrease in nominal aggregate output
D)  an increase in the required reserve ratio and a decrease in the level of nominal aggregate output

Question 9

Refer to the information provided in Figure 11.5 below to answer the questions that follow.  Figure 11.5
-Refer to Figure 11.5.If the money supply decreases from  to  ,

Accepted Answer

A)  money demand must increase for the money market to return to equilibrium.
B)  the interest rate will fall to 4%.
C)  the interest rate will increase to 6%.
D)  the money market will return to equilibrium only if the money supply is decreased to its original level.

Question 10

What will happen to the equilibrium interest rate when both money supply and nominal aggregate output decrease?

Accepted Answer

A)  The equilibrium interest rate increases.
B)  The equilibrium interest rate decreases.
C)  The equilibrium interest rate remains constant.
D)  The impact on the equilibrium interest rate is ambiguous.

Question 11

Refer to the information provided in Figure 11.4 below to answer the questions that follow.  Figure 11.4
-Refer to Figure 11.4.At an interest rate of 8%,firms and households

Accepted Answer

A)  will attempt to increase their holdings of money by selling bonds.
B)  are satisfied with the amount of money they are holding.
C)  will attempt to increase both their holdings of money and their holdings of bonds.
D)  will attempt to reduce their holdings of money by buying bonds.

Question 12

Which of the following is NOT a motive for holding money?

Accepted Answer

A)  the transaction motive
B)  the asset motive
C)  the speculative motive
D)  All of the above are motives for holding money.

Question 13

If the Federal Reserve wants interest rates to increase,it will sell bonds.

Accepted Answer

A) True 
 B)False

Question 14

Related to the Economics in Practice on p.531: The increase in the number of ATMs in Italy has had what impact on the market for cash?

Accepted Answer

A)  demand has increased
B)  demand has decreased
C)  supply has increased
D)  supply had decreased

Question 15

Refer to the information provided in Figure 11.3 below to answer the questions that follow.  Figure 11.3
-Refer to Figure 11.3.An increase in the money supply,ceteris paribus,will likely

Accepted Answer

A)  increase the equilibrium interest rate and decrease equilibrium money holdings.
B)  increase the equilibrium interest rate without changing equilibrium money holdings.
C)  decrease the equilibrium interest rate and increase equilibrium money holdings.
D)  decrease the equilibrium interest rate without changing equilibrium money holdings.

Question 16

Related to the Economics in Practice on p.531: In Italy,checking accounts pay interest.As these interest rates increase,ceteris paribus,

Accepted Answer

A)  the demand for cash increases.
B)  the demand for cash decreases.
C)  the demand for cash does not change.
D)  the supply of cash decreases.

Question 17

A surplus of money in the money market causes

Accepted Answer

A)  a decrease in the equilibrium interest rate.
B)  a decrease in the money supply.
C)  an increase in the demand for money.
D)  a decrease in the quantity demanded of money.

Question 18

Assume the current one-year interest rate on a bond is 2%,and the one-year expected rate a year from now is 3%.According to the expectations theory of the term structure of interest rates,the two-year interest rate is

Accepted Answer

A)  2%.
B)  2.5%.
C)  3%.
D)  5%.

Question 19

Which of the following causes the quantity demanded of money to increase?

Accepted Answer

A)  an increase in income
B)  a decrease in income
C)  a decrease in the price level
D)  a decrease in the interest rate

Question 20

Government securities that mature in less than a year are called

Accepted Answer

A)  Federal funds bonds.
B)  government bonds.
C)  Federal Reserve bonds.
D)  Treasury bills.

Exam 11: Money Demand and the Equilibrium Interest Rate

Assume the current one-year interest rate on a bond is 2%,and the one-year expected rate a year from now is 3%.According to the expectations theory of the term structure of interest rates,the two-year interest rate is

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A surplus of money in the money market causes

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What will happen to the equilibrium interest rate when both money supply and nominal aggregate output decrease?

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Refer to the information provided in Figure 11.5 below to answer the questions that follow. Figure 11.5 -Refer to Figure 11.5.If the money supply decreases from to ,

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Related to the Economics in Practice on p.531: In Italy,checking accounts pay interest.As these interest rates increase,ceteris paribus,

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Refer to the information provided in Figure 11.3 below to answer the questions that follow. Figure 11.3 -Refer to Figure 11.3.An increase in the money supply,ceteris paribus,will likely

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The average monthly balance in Yolanda's bank account is $1,800.Yolanda spends the same amount of money each day during a 30-day month,and at the end of the month her account balance is $0.Yolanda spends her money at a constant rate of ________ per day.

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Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate?

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Assume the one-year interest rate on a bond is 8% and the expected one-year rate a year from now is 12%.According to the expectations theory of the term structure of interest rates,the two-year rate will be

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A shortage of money in the money market can be eliminated through

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Government securities that mature in less than a year are called

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Which of the following causes the quantity demanded of money to increase?

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Which of the following leads to a decrease in the interest rate?

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Refer to the information provided in Figure 11.1 below to answer the questions that follow. Figure 11.1 -Refer to Figure 11.1.A movement from Point B to Point A can be caused by

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Refer to the information provided in Figure 11.1 below to answer the questions that follow. Figure 11.1 -Refer to Figure 11.1.All of the following events can cause a movement from Point E to Point A EXCEPT

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Related to the Economics in Practice on p.531: The increase in the number of ATMs in Italy has had what impact on the market for cash?

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Which of the following is NOT a motive for holding money?

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The transaction demand for money depends on

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Refer to the information provided in Figure 11.4 below to answer the questions that follow. Figure 11.4 -Refer to Figure 11.4.At an interest rate of 8%,firms and households

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If the Federal Reserve wants interest rates to increase,it will sell bonds.

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