Exam 10: Financial Markets and the Economy

Explain the link between U.S. interest rates, the dollar exchange rate, and net exports. Explain why high interest rates in the United States cause net exports to fall and low interest rates cause net exports to rise?

Which of the following decreases the demand for money? A) an increase in income B) an increase in real GDP C) a decrease in the price level D) expectations of higher bond prices

Figure 10-5 -Refer to Figure 10-5. What happens in the bond market as a result of the shift in the money supply curve from S₁ to S₂?

The demand for money curve is negatively sloped because people tend to hold less money at lower interest rates.

Explain the relationships among the face value of a bond, the price of a bond, and the interest rate paid on the bond.

Expectations that bond prices will be rising in the near future are likely to decrease the demand for money.

An increase in the demand for bonds leads to

When the money demand curve is drawn with interest rate on the vertical axis and the quantity of money on the horizontal axis, the slope of the demand curve for money is

Figure 10-5 -Refer to Figure 10-5. What could have caused the money supply curve to shift from S₁ to S₂?

Money held for contingencies reflects the _______ demand for money.

Keeping an extra $200 in your checking account to pay for possible car repairs illustrates the

Suppose present interest rates are relatively high. Financial investors will hold

An increase in the money supply will decrease both interest rates and exchange rates.

Which of the following would cause the price of the dollar to rise?

Suppose you buy a bond with a face value of $1,000 for $800. What is the interest rate you receive on the bond?

A fall in the price of bonds may lead to a(n):

A decrease in the supply of money will lead to a(n)

A country's exchange rate is the

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate a recessionary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

An increase in the supply of bonds leads to an increase in aggregate demand.