Question 1

An increase in the demand for bonds

Accepted Answer

A)  raises the interest rate and increases equilibrium quantity of bonds. 
B)  raises the interest rate and decreases equilibrium quantity of bonds. 
C)  lowers the interest rate and decreases equilibrium quantity of bonds. 
D)  lowers the interest rate and increases equilibrium quantity of bonds. 
A)  raises the interest rate and increases equilibrium quantity of bonds. 
B)  raises the interest rate and decreases equilibrium quantity of bonds. 
C)  lowers the interest rate and decreases equilibrium quantity of bonds. 
D)  lowers the interest rate and increases equilibrium quantity of bonds.

Question 2

When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money.

Accepted Answer

A)  speculative 
B)  exchange 
C)  transactions 
D)  precautionary 
A)  speculative 
B)  exchange 
C)  transactions 
D)  precautionary

Question 3

Suppose the United States experiences a rise in the U.S. dollar price of foreign exchange.

Accepted Answer

A)  This means that the U.S. exchange rate has risen and the U.S. dollar buys more foreign currency. 
B)  This means that the U.S. exchange rate has risen and the U.S. dollar buys less foreign currency. 
C)  This means that the U.S. exchange rate has fallen and the U.S. dollar buys more foreign currency. 
D)  This means that the U.S. exchange rate has fallen and the U.S. dollar buys less foreign currency. 
A)  This means that the U.S. exchange rate has risen and the U.S. dollar buys more foreign currency. 
B)  This means that the U.S. exchange rate has risen and the U.S. dollar buys less foreign currency. 
C)  This means that the U.S. exchange rate has fallen and the U.S. dollar buys more foreign currency. 
D)  This means that the U.S. exchange rate has fallen and the U.S. dollar buys less foreign currency.

Question 4

When the Fed conducts an open market sale, it

Accepted Answer

A)  raises interest rates and increases the money supply. 
B)  raises interest rates and reduces the money supply. 
C)  lowers interest rates and reduces the money supply. 
D)  lowers interest rates and increases the money supply. 
A)  raises interest rates and increases the money supply. 
B)  raises interest rates and reduces the money supply. 
C)  lowers interest rates and reduces the money supply. 
D)  lowers interest rates and increases the money supply.

Question 5

Figure 10-2  
-Refer to Figure 10-2. Who generates a supply of dollars in the foreign exchange market?

Accepted Answer

A)  U.S. residents who demand foreign goods, services, and assets. 
B)  U.S. residents and firms who wish to sell domestic assets to foreigners. 
C)  Foreign residents abroad who demand U.S. goods, services, and assets. 
D)  Foreign banks and citizens who wish to increase their holdings of a reserve currency. 
A)  U.S. residents who demand foreign goods, services, and assets. 
B)  U.S. residents and firms who wish to sell domestic assets to foreigners. 
C)  Foreign residents abroad who demand U.S. goods, services, and assets. 
D)  Foreign banks and citizens who wish to increase their holdings of a reserve currency.

Question 6

A bond is

Accepted Answer

A)  a debt instrument, that is, the issuer has taken out a loan. 
B)  an equity instrument, that is, the buyer has purchased ownership in the issuer's firm. 
C)  the same thing as a stock. 
D)  a short-term loan from the government. 
A)  a debt instrument, that is, the issuer has taken out a loan. 
B)  an equity instrument, that is, the buyer has purchased ownership in the issuer's firm. 
C)  the same thing as a stock. 
D)  a short-term loan from the government.

Question 7

If the Fed acts to decrease the money supply,

Accepted Answer

A)  it will increase the supply of bonds, drive bond prices up, and drive interest rates down. 
B)  it will increase the demand for bonds, drive bond prices down, and drive interest rates down. 
C)  it will increase the supply of bonds, drive bond prices down, and drive interest rates up. 
D)  it will increase the demand for bonds, drive bond prices up, and drive interest rates down. 
A)  it will increase the supply of bonds, drive bond prices up, and drive interest rates down. 
B)  it will increase the demand for bonds, drive bond prices down, and drive interest rates down. 
C)  it will increase the supply of bonds, drive bond prices down, and drive interest rates up. 
D)  it will increase the demand for bonds, drive bond prices up, and drive interest rates down.

Question 8

Figure 10-3  
-Refer to Figure 10-3. If the rate of interest is below the equilibrium rate, there will be

Accepted Answer

A)  an excess demand for money and the interest rate will rise. 
B)  an excess supply of money and the interest rate will fall. 
C)  an excess demand for money and the interest rate will fall. 
D)  an excess supply of money and the interest rate will rise. 
A)  an excess demand for money and the interest rate will rise. 
B)  an excess supply of money and the interest rate will fall. 
C)  an excess demand for money and the interest rate will fall. 
D)  an excess supply of money and the interest rate will rise.

Question 9

If the demand for U. S. dollars goes down, the exchange rate will .

Accepted Answer

A)  increase and, as a result, net exports in the United States will decrease. 
B)  decrease and, as a result, net exports in the United States will increase 
C)  increase and, as a result, net exports in the United States will increase 
D)  decrease and, as a result, net exports in the United States will decrease 
A)  increase and, as a result, net exports in the United States will decrease. 
B)  decrease and, as a result, net exports in the United States will increase 
C)  increase and, as a result, net exports in the United States will increase 
D)  decrease and, as a result, net exports in the United States will decrease

Question 10

Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If your entire earnings are deposited in your checking account at the beginning of the month, then your average quantity of money demanded is

Accepted Answer

A)  $160. 
B)  $1,200. 
C)  $2,400. 
D)  $4,800. 
A)  $160. 
B)  $1,200. 
C)  $2,400. 
D)  $4,800.

Question 11

Some economists have proposed a new definition of money that would better track money demand. One such measure is the MZM or "money zero maturity". What kind of items will be included in this measure?

Accepted Answer

A)  Assets that have no maturity such as cash, checking accounts, and shares of stocks. 
B)  Assets that can be converted to cash with zero penalty and securities that are issued by the U.S. government since these are virtually risk free. 
C)  Any deposits that do not have specified maturity terms, just as long as these deposits are fairly liquid and are used by consumers to pay for transactions. 
D)  Liquid accounts held by the public, regardless of whether they are classified as M1 or M2 and the reserves of banks that earn no interest since these could be used to create money. 
A)  Assets that have no maturity such as cash, checking accounts, and shares of stocks. 
B)  Assets that can be converted to cash with zero penalty and securities that are issued by the U.S. government since these are virtually risk free. 
C)  Any deposits that do not have specified maturity terms, just as long as these deposits are fairly liquid and are used by consumers to pay for transactions. 
D)  Liquid accounts held by the public, regardless of whether they are classified as M1 or M2 and the reserves of banks that earn no interest since these could be used to create money.

Question 12

Higher interest rates tend to increase the demand for money.

Accepted Answer

A) True 
 B)False

Question 13

Figure 10-2  
-Refer to Figure 10-2. The supply of dollars curve slopes upwards because

Accepted Answer

A)  a higher exchange rate tends to make foreign goods and services more expensive for U.S. buyers, thereby raising the price of foreign currency in the foreign exchange market. 
B)  a higher exchange rate tends to make foreign goods and services cheaper to U.S. buyers, thereby generating a higher quantity of dollars in the foreign exchange market. 
C)  a lower exchange rate tends to decrease U.S. exports, thereby generating a lower quantity of dollars in the foreign exchange market. 
D)  a lower exchange rate tends to increase U.S. imports, thereby raising the price of foreign currency in the foreign exchange market. 
A)  a higher exchange rate tends to make foreign goods and services more expensive for U.S. buyers, thereby raising the price of foreign currency in the foreign exchange market. 
B)  a higher exchange rate tends to make foreign goods and services cheaper to U.S. buyers, thereby generating a higher quantity of dollars in the foreign exchange market. 
C)  a lower exchange rate tends to decrease U.S. exports, thereby generating a lower quantity of dollars in the foreign exchange market. 
D)  a lower exchange rate tends to increase U.S. imports, thereby raising the price of foreign currency in the foreign exchange market.

Question 14

In the textbook model, wealth is held in two forms: money and in bond funds. Which of the following statements are true? 
I. Money and bond funds earn the same interest rates in a well functioning money market.
II. Money is a more liquid asset compared to bond funds.
III. Bond funds are interest earning assets while money generally is not.
IV. The difference between the interest rates paid on money deposits and the interest return available from bonds is the cost of holding money.

Accepted Answer

A)  I, II, and IV 
B)  I and IV 
C)  II, III, and IV 
D)  III and IV 
A)  I, II, and IV 
B)  I and IV 
C)  II, III, and IV 
D)  III and IV

Question 15

Figure 10-8  
-Refer to Figure 10-8. If the economy is at point b, the Federal Reserve can close the output gap by selling bonds. In the bond market,

Accepted Answer

A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates. 
A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

Question 16

If financial investors believe that the prices of bonds and other assets will fall,

Accepted Answer

A)  their precautionary demand for money goes up. 
B)  their speculative demand for money goes up. 
C)  their precautionary demand for money goes down. 
D)  their speculative demand for money goes down. 
A)  their precautionary demand for money goes up. 
B)  their speculative demand for money goes up. 
C)  their precautionary demand for money goes down. 
D)  their speculative demand for money goes down.

Question 17

All of the following are determinants of money demand except

Accepted Answer

A)  the cost of transferring funds from interest earning assets to checking accounts. 
B)  expectations about the future price level. 
C)  the money supply. 
D)  Real GDP. 
A)  the cost of transferring funds from interest earning assets to checking accounts. 
B)  expectations about the future price level. 
C)  the money supply. 
D)  Real GDP.

Question 18

Figure 10-7  
-Refer to Figure 10-7. The increase in money supply and the resulting decrease in the interest rate from 6% to 4%, is accomplished by action that also

Accepted Answer

A)  lowers the price of government bonds. 
B)  raises the interest rate on government bonds. 
C)  increases the demand for government bonds. 
D)  increases the supply of government bonds. 
A)  lowers the price of government bonds. 
B)  raises the interest rate on government bonds. 
C)  increases the demand for government bonds. 
D)  increases the supply of government bonds.

Question 19

Figure 10-8  
-Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Accepted Answer

A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates. 
A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

Question 20

Figure 10-6  
-Refer to Figure 10-6. An increase in U.S. interest rates would

Accepted Answer

A)  decrease the demand for U.S. dollars, increase the exchange rate, and lead to a decrease in net exports. The results of such a policy are represented in Panel (b). 
B)  decrease the demand for U.S. dollars, decrease the exchange rate, and lead to an increase in net exports. The results of such a policy are represented in Panel (a). 
C)  increase the demand for U.S. dollars, increase the exchange rate, and lead to a decrease in net exports. The results of such a policy are represented in Panel (b). 
D)  increase the demand for U.S. dollars, decrease the exchange rate, and lead to a decrease in net exports. The results of such a policy are represented in Panel (b). 
A)  decrease the demand for U.S. dollars, increase the exchange rate, and lead to a decrease in net exports. The results of such a policy are represented in Panel (b). 
B)  decrease the demand for U.S. dollars, decrease the exchange rate, and lead to an increase in net exports. The results of such a policy are represented in Panel (a). 
C)  increase the demand for U.S. dollars, increase the exchange rate, and lead to a decrease in net exports. The results of such a policy are represented in Panel (b). 
D)  increase the demand for U.S. dollars, decrease the exchange rate, and lead to a decrease in net exports. The results of such a policy are represented in Panel (b).

An increase in the demand for bonds

When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money.

Suppose the United States experiences a rise in the U.S. dollar price of foreign exchange.

When the Fed conducts an open market sale, it

Figure 10-2 -Refer to Figure 10-2. Who generates a supply of dollars in the foreign exchange market?

A bond is

If the Fed acts to decrease the money supply,

Figure 10-3 -Refer to Figure 10-3. If the rate of interest is below the equilibrium rate, there will be

If the demand for U. S. dollars goes down, the exchange rate will .

Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If your entire earnings are deposited in your checking account at the beginning of the month, then your average quantity of money demanded is

Some economists have proposed a new definition of money that would better track money demand. One such measure is the MZM or "money zero maturity". What kind of items will be included in this measure?

Higher interest rates tend to increase the demand for money.

Figure 10-2 -Refer to Figure 10-2. The supply of dollars curve slopes upwards because

Figure 10-8 -Refer to Figure 10-8. If the economy is at point b, the Federal Reserve can close the output gap by selling bonds. In the bond market,

If financial investors believe that the prices of bonds and other assets will fall,

All of the following are determinants of money demand except

Figure 10-7 -Refer to Figure 10-7. The increase in money supply and the resulting decrease in the interest rate from 6% to 4%, is accomplished by action that also

Figure 10-8 -Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Figure 10-6 -Refer to Figure 10-6. An increase in U.S. interest rates would

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 10: Financial Markets and the Economy

An increase in the demand for bonds

When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money.

Suppose the United States experiences a rise in the U.S. dollar price of foreign exchange.

When the Fed conducts an open market sale, it

Figure 10-2 -Refer to Figure 10-2. Who generates a supply of dollars in the foreign exchange market?

A bond is

If the Fed acts to decrease the money supply,

Figure 10-3 -Refer to Figure 10-3. If the rate of interest is below the equilibrium rate, there will be

If the demand for U. S. dollars goes down, the exchange rate will .

Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If your entire earnings are deposited in your checking account at the beginning of the month, then your average quantity of money demanded is

Some economists have proposed a new definition of money that would better track money demand. One such measure is the MZM or "money zero maturity". What kind of items will be included in this measure?

Higher interest rates tend to increase the demand for money.

Figure 10-2 -Refer to Figure 10-2. The supply of dollars curve slopes upwards because

Figure 10-8 -Refer to Figure 10-8. If the economy is at point b, the Federal Reserve can close the output gap by selling bonds. In the bond market,

If financial investors believe that the prices of bonds and other assets will fall,

All of the following are determinants of money demand except

Figure 10-7 -Refer to Figure 10-7. The increase in money supply and the resulting decrease in the interest rate from 6% to 4%, is accomplished by action that also

Figure 10-8 -Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Figure 10-6 -Refer to Figure 10-6. An increase in U.S. interest rates would

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters