Question 1

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

Accepted Answer

A)  U.S. residents who demand foreign goods, services, and assets. 
B)  U.S. residents who demand domestically produced goods, services, and assets. 
C)  Foreign residents abroad who demand U.S. goods, services, and assets. 
D)  Foreign banks and citizens who wish to reduce their holdings of foreign currencies. 
A)  U.S. residents who demand foreign goods, services, and assets. 
B)  U.S. residents who demand domestically produced goods, services, and assets. 
C)  Foreign residents abroad who demand U.S. goods, services, and assets. 
D)  Foreign banks and citizens who wish to reduce their holdings of foreign currencies.

Question 2

When the Fed sells government bonds in the open market, interest rates will rise.

Accepted Answer

A) True 
 B)False

Question 3

Figure 10-2  
-Refer to Figure 10-2. The demand for dollars curve slopes downwards because

Accepted Answer

A)  a higher exchange rate tends to make U.S. goods and services more expensive for foreigners, thereby generating a lower quantity of dollars in the foreign exchange market. 
B)  a higher exchange rate tends to make U.S. goods and services cheaper for foreigners, thereby generating a lower quantity of dollars in the foreign exchange market. 
C)  a lower exchange rate tends to decrease U.S. exports, which raises the price of foreign currency 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 U.S. goods and services more expensive for foreigners, thereby generating a lower quantity of dollars in the foreign exchange market. 
B)  a higher exchange rate tends to make U.S. goods and services cheaper for foreigners, thereby generating a lower quantity of dollars in the foreign exchange market. 
C)  a lower exchange rate tends to decrease U.S. exports, which raises the price of foreign currency 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 4

The exchange rate increases when there is a decrease in the demand for bonds.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true about bonds?

Accepted Answer

A)  Buyers of newly issued bonds are borrowers. 
B)  When the government and large corporations want to borrow money they buy bonds. 
C)  A bond owner must hold a bond until it matures. 
D)  The interest rate on a bond is inversely related to its price. 
A)  Buyers of newly issued bonds are borrowers. 
B)  When the government and large corporations want to borrow money they buy bonds. 
C)  A bond owner must hold a bond until it matures. 
D)  The interest rate on a bond is inversely related to its price.

Question 6

If the U.S. exchange rate falls,

Accepted Answer

A)  foreign products are now more expensive toforeigners. 
B)  foreign products are now cheaper to U.S. citizens. 
C)  U.S. products are now more expensive to U.S. citizens. 
D)  U.S. products are now cheaper to foreign countries. 
A)  foreign products are now more expensive toforeigners. 
B)  foreign products are now cheaper to U.S. citizens. 
C)  U.S. products are now more expensive to U.S. citizens. 
D)  U.S. products are now cheaper to foreign countries.

Question 7

In deciding how much money to hold, individuals

Accepted Answer

A)  must understand the velocity of the money and its role in the economy. 
B)  compare the inflation rate with the market interest rate. 
C)  base their decisions on what others are doing. 
D)  evaluate the relative costs and benefits of holding money versus other assets. 
A)  must understand the velocity of the money and its role in the economy. 
B)  compare the inflation rate with the market interest rate. 
C)  base their decisions on what others are doing. 
D)  evaluate the relative costs and benefits of holding money versus other assets.

Question 8

The face value of a bond is the amount that will be paid to the holder of the bond when it matures.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-8  
-Refer to Figure 10-8. If the economy is at point b,

Accepted Answer

A)  the unemployment rate is negative. 
B)  the unemployment rate is zero. 
C)  the level of employment is greater than the natural level of employment. 
D)  it is at the natural level of employment. 
A)  the unemployment rate is negative. 
B)  the unemployment rate is zero. 
C)  the level of employment is greater than the natural level of employment. 
D)  it is at the natural level of employment.

Question 10

An increase in the money supply by the Federal Reserve is likely to increase 
I. consumption expenditures
II. investment expenditures
III. interest rates
IV. the exchange rate

Accepted Answer

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

Question 11

Currency rates of exchange are determined by

Accepted Answer

A)  agreements among governments. 
B)  the nations with the strongest armies. 
C)  the demand and supply of the currency. 
D)  multilateral business agreements. 
A)  agreements among governments. 
B)  the nations with the strongest armies. 
C)  the demand and supply of the currency. 
D)  multilateral business agreements.

Question 12

What are the three motives for holding money?

Accepted Answer

A)  the medium of exchange motive, the store of value motive, and the unit of account motive 
B)  the transaction motive, the speculative motive, and the liquidity motive 
C)  the transaction motive, the investment motive, and the liquidity motive 
D)  the transaction motive, the speculative motive, and the precautionary motive 
A)  the medium of exchange motive, the store of value motive, and the unit of account motive 
B)  the transaction motive, the speculative motive, and the liquidity motive 
C)  the transaction motive, the investment motive, and the liquidity motive 
D)  the transaction motive, the speculative motive, and the precautionary motive

Question 13

What happens in the money market when there is a decrease in the supply of money?

Accepted Answer

A)  The equilibrium quantity of money increases and the equilibrium interest rate increases. 
B)  The equilibrium quantity of money increases and the equilibrium interest rate decreases. 
C)  The equilibrium quantity of money decreases and the equilibrium interest rate increases. 
D)  The equilibrium quantity of money decreases and the equilibrium interest rate decreases. 
A)  The equilibrium quantity of money increases and the equilibrium interest rate increases. 
B)  The equilibrium quantity of money increases and the equilibrium interest rate decreases. 
C)  The equilibrium quantity of money decreases and the equilibrium interest rate increases. 
D)  The equilibrium quantity of money decreases and the equilibrium interest rate decreases.

Question 14

Suppose you sell a $1,000 bond that matures in 1 year for $950. Calculate the interest rate you will have to pay on this bond.

Accepted Answer

A)  0.95% 
B)  5.0% 
C)  5.3% 
D)  95% 
A)  0.95% 
B)  5.0% 
C)  5.3% 
D)  95%

Question 15

The opportunity cost of holding money is

Accepted Answer

A)  the liquidity foregone. 
B)  the higher interest rates that can be earned by holding a bond fund. 
C)  the decrease in risk from holding money rather than a bond fund. 
D)  the liquidity gained by holding ready cash. 
A)  the liquidity foregone. 
B)  the higher interest rates that can be earned by holding a bond fund. 
C)  the decrease in risk from holding money rather than a bond fund. 
D)  the liquidity gained by holding ready cash.

Question 16

Action taken by the Fed to reduce the money supply will tend, all other things unchanged,

Accepted Answer

A)  to reduce investment. 
B)  to increase investment. 
C)  to have no effect on net exports. 
D)  to increase real GDP and the price level. 
A)  to reduce investment. 
B)  to increase investment. 
C)  to have no effect on net exports. 
D)  to increase real GDP and the price level.

Question 17

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

Accepted Answer

The answer of Which of the following decreases the demand...

Question 18

Explain what happens in the bond market when the Fed conducts an open market purchase. A complete answer should explain what happens to bond prices, the quantity of bonds traded and the interest rate. Illustrate your answer with a demand-supply graph of the bond market.

Accepted Answer

When the Fed conducts an open market pur

Question 19

Figure 10-8  
-Refer to Figure 10-8. Long-run equilibrium positions occur at points

Accepted Answer

A)  a and d. 
B)  a and b. 
C)  c and d. 
D)  b and d. 
A)  a and d. 
B)  a and b. 
C)  c and d. 
D)  b and d.

Question 20

An increase in the money supply will shift the aggregate demand curve to the left, resulting in a lower equilibrium price level and a lower equilibrium real GDP.

Accepted Answer

A) True 
 B)False

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

When the Fed sells government bonds in the open market, interest rates will rise.

Figure 10-2 -Refer to Figure 10-2. The demand for dollars curve slopes downwards because

The exchange rate increases when there is a decrease in the demand for bonds.

Which of the following statements is true about bonds?

If the U.S. exchange rate falls,

In deciding how much money to hold, individuals

The face value of a bond is the amount that will be paid to the holder of the bond when it matures.

Figure 10-8 -Refer to Figure 10-8. If the economy is at point b,

An increase in the money supply by the Federal Reserve is likely to increase I. consumption expenditures II. investment expenditures III. interest rates IV. the exchange rate

Currency rates of exchange are determined by

What are the three motives for holding money?

What happens in the money market when there is a decrease in the supply of money?

Suppose you sell a $1,000 bond that matures in 1 year for $950. Calculate the interest rate you will have to pay on this bond.

The opportunity cost of holding money is

Action taken by the Fed to reduce the money supply will tend, all other things unchanged,

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

Explain what happens in the bond market when the Fed conducts an open market purchase. A complete answer should explain what happens to bond prices, the quantity of bonds traded and the interest rate. Illustrate your answer with a demand-supply graph of the bond market.

Figure 10-8 -Refer to Figure 10-8. Long-run equilibrium positions occur at points

An increase in the money supply will shift the aggregate demand curve to the left, resulting in a lower equilibrium price level and a lower equilibrium real GDP.

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

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

When the Fed sells government bonds in the open market, interest rates will rise.

Figure 10-2 -Refer to Figure 10-2. The demand for dollars curve slopes downwards because

The exchange rate increases when there is a decrease in the demand for bonds.

Which of the following statements is true about bonds?

If the U.S. exchange rate falls,

In deciding how much money to hold, individuals

The face value of a bond is the amount that will be paid to the holder of the bond when it matures.

Figure 10-8 -Refer to Figure 10-8. If the economy is at point b,

An increase in the money supply by the Federal Reserve is likely to increase I. consumption expenditures II. investment expenditures III. interest rates IV. the exchange rate

Currency rates of exchange are determined by

What are the three motives for holding money?

What happens in the money market when there is a decrease in the supply of money?

Suppose you sell a $1,000 bond that matures in 1 year for $950. Calculate the interest rate you will have to pay on this bond.

The opportunity cost of holding money is

Action taken by the Fed to reduce the money supply will tend, all other things unchanged,

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

Explain what happens in the bond market when the Fed conducts an open market purchase. A complete answer should explain what happens to bond prices, the quantity of bonds traded and the interest rate. Illustrate your answer with a demand-supply graph of the bond market.

Figure 10-8 -Refer to Figure 10-8. Long-run equilibrium positions occur at points

An increase in the money supply will shift the aggregate demand curve to the left, resulting in a lower equilibrium price level and a lower equilibrium real GDP.

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