Question 1

Figure 10-4  
-Refer to Figure 10-4. Which of the following could cause the demand curve to shift from D2 to D1?

Accepted Answer

A)  a decrease in the costs of transferring funds between money and non-money accounts 
B)  an increase in the interest rate 
C)  a decrease in the price level 
D)  greater preferences by consumers for holding money 
A)  a decrease in the costs of transferring funds between money and non-money accounts 
B)  an increase in the interest rate 
C)  a decrease in the price level 
D)  greater preferences by consumers for holding money

Question 2

The supply of bonds curve slopes upwards because

Accepted Answer

A)  at higher prices, bonds pay higher interest which makes them more attractive to suppliers. 
B)  lower prices raises the cost of borrowing which makes them less attractive to suppliers. 
C)  at lower prices, bonds pay higher interest which makes them more attractive to suppliers. 
D)  higher prices raise the cost of borrowing which makes them less attractive to suppliers. 
A)  at higher prices, bonds pay higher interest which makes them more attractive to suppliers. 
B)  lower prices raises the cost of borrowing which makes them less attractive to suppliers. 
C)  at lower prices, bonds pay higher interest which makes them more attractive to suppliers. 
D)  higher prices raise the cost of borrowing which makes them less attractive to suppliers.

Question 3

Figure 10-8  
-Refer to Figure 10-8. If the economy is at point b, the Federal Reserve can close the output gap

Accepted Answer

A)  by pursuing an expansionary monetary policy to raise the interest rate and decrease short run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and decrease aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and decrease short run aggregate supply. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and reduce aggregate demand. 
A)  by pursuing an expansionary monetary policy to raise the interest rate and decrease short run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and decrease aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and decrease short run aggregate supply. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and reduce aggregate demand.

Question 4

Figure 10-7  
-Refer to Figure 10-7. The increase in money supply leads to a(n)

Accepted Answer

A)  decrease in investment, a decrease in real GDP, and a shift to the left in the money demand curve. 
B)  increase in investment, a decrease in real GDP, and a shift to the right in the money demand curve. 
C)  increase in investment, an increase in real GDP, and a shift to the left in the money demand curve. 
D)  increase in investment, an increase in real GDP, and a shift to the right in the money demand curve. 
A)  decrease in investment, a decrease in real GDP, and a shift to the left in the money demand curve. 
B)  increase in investment, a decrease in real GDP, and a shift to the right in the money demand curve. 
C)  increase in investment, an increase in real GDP, and a shift to the left in the money demand curve. 
D)  increase in investment, an increase in real GDP, and a shift to the right in the money demand curve.

Question 5

All else constant, a decrease in the supply of money will lead to

Accepted Answer

A)  an increase in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
B)  an increase in the equilibrium quantity of money and a decrease in the equilibrium price of bonds. 
C)  a decrease in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
D)  a decrease in the equilibrium quantity of money and a decrease in the equilibrium price of bonds. 
A)  an increase in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
B)  an increase in the equilibrium quantity of money and a decrease in the equilibrium price of bonds. 
C)  a decrease in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
D)  a decrease in the equilibrium quantity of money and a decrease in the equilibrium price of bonds.

Question 6

Figure 10-3  
-Refer to Figure 10-3. In equilibrium the interest rate is

Accepted Answer

A)  r2 and the quantity of money is Q0. 
B)  r0 and the quantity of money is Q2. 
C)  r1 and the quantity of money is Q1. 
D)  r and the quantity of money is Q2. 
A)  r2 and the quantity of money is Q0. 
B)  r0 and the quantity of money is Q2. 
C)  r1 and the quantity of money is Q1. 
D)  r and the quantity of money is Q2.

Question 7

When interest rates fall, people will be willing to hold more money.

Accepted Answer

A) True 
 B)False

Question 8

Alexa keeps $500 readily accessible in her checking account so that she can take advantage of changes in the prices of other financial assets. This illustrates the

Accepted Answer

A)  speculative demand for money. 
B)  transfer demand for money. 
C)  precautionary demand for money. 
D)  transactions demand for money. 
A)  speculative demand for money. 
B)  transfer demand for money. 
C)  precautionary demand for money. 
D)  transactions demand for money.

Question 9

Figure 10-3  
-Refer to Figure 10-3. The vertical money supply curve implies that

Accepted Answer

A)  the money supply is determined by the banking system. 
B)  the money supply is determined by the Federal Reserve. 
C)  the money supply is determined by market forces of demand and supply. 
D)  the money supply is determined by real GDP. 
A)  the money supply is determined by the banking system. 
B)  the money supply is determined by the Federal Reserve. 
C)  the money supply is determined by market forces of demand and supply. 
D)  the money supply is determined by real GDP.

Question 10

Figure 10-7  
-Refer to Figure 10-7. Following the increase in money supply, at the original interest rate of 6%, there is

Accepted Answer

A)  an excess demand for money. 
B)  an excess supply of money. 
C)  an equilibrium in the money market. 
D)  pressure for the interest rate to rise. 
A)  an excess demand for money. 
B)  an excess supply of money. 
C)  an equilibrium in the money market. 
D)  pressure for the interest rate to rise.

Question 11

If bond prices fall,

Accepted Answer

A)  interest rates rise, which in turn, discourage investment. 
B)  interest rates fall, which in turn, discourage investment. 
C)  interest rates rise, which in turn, stimulate investment. 
D)  interest rates fall, which in turn, stimulate investment. 
A)  interest rates rise, which in turn, discourage investment. 
B)  interest rates fall, which in turn, discourage investment. 
C)  interest rates rise, which in turn, stimulate investment. 
D)  interest rates fall, which in turn, stimulate investment.

Question 12

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

Accepted Answer

A)  increase in equilibrium real GDP and an increase in the equilibrium interest rate. 
B)  increase in equilibrium real GDP and a decrease in the equilibrium interest rate. 
C)  decrease in equilibrium real GDP and an increase in the equilibrium interest rate. 
D)  decrease in equilibrium real GDP and a decrease in the equilibrium interest rate. 
A)  increase in equilibrium real GDP and an increase in the equilibrium interest rate. 
B)  increase in equilibrium real GDP and a decrease in the equilibrium interest rate. 
C)  decrease in equilibrium real GDP and an increase in the equilibrium interest rate. 
D)  decrease in equilibrium real GDP and a decrease in the equilibrium interest rate.

Question 13

Which of the following events is likely to generate a supply of U.S. dollars in the foreign exchange market?

Accepted Answer

A)  A Saudi Arabian citizen buys a condominium in New York. 
B)  An American student will pay her way to attend her first year of college at Oxford, England. 
C)  Alabama Mills exports 5,000 bales of cotton to Pakistan. 
D)  Hans Meyer, a German citizen, plans to spend a month in California, sampling wines. 
A)  A Saudi Arabian citizen buys a condominium in New York. 
B)  An American student will pay her way to attend her first year of college at Oxford, England. 
C)  Alabama Mills exports 5,000 bales of cotton to Pakistan. 
D)  Hans Meyer, a German citizen, plans to spend a month in California, sampling wines.

Question 14

All else constant, an increase in the supply of

Accepted Answer

A)  increases the equilibrium quantity and the equilibrium price of bonds. 
B)  increases the equilibrium quantity and decreases the equilibrium price of bonds. 
C)  decreases the equilibrium quantity and increases the equilibrium price of bonds. 
D)  decreases the equilibrium quantity and the equilibrium price of bonds. 
A)  increases the equilibrium quantity and the equilibrium price of bonds. 
B)  increases the equilibrium quantity and decreases the equilibrium price of bonds. 
C)  decreases the equilibrium quantity and increases the equilibrium price of bonds. 
D)  decreases the equilibrium quantity and the equilibrium price of bonds.

Question 15

An increase in the supply of money will lead to a(n)

Accepted Answer

A)  increase in equilibrium real GDP and an increase in equilibrium price level. 
B)  increase in equilibrium real GDP and a decrease in equilibrium price level. 
C)  decrease in equilibrium real GDP and an increase in equilibrium price level. 
D)  decrease in equilibrium real GDP and a decrease in equilibrium price level. 
A)  increase in equilibrium real GDP and an increase in equilibrium price level. 
B)  increase in equilibrium real GDP and a decrease in equilibrium price level. 
C)  decrease in equilibrium real GDP and an increase in equilibrium price level. 
D)  decrease in equilibrium real GDP and a decrease in equilibrium price level.

Question 16

A $1,000 bond, which matures in one year, has a price of $925. The interest rate on this bond is

Accepted Answer

A)  7.5%. 
B)  8.11%. 
C)  9.25%. 
D)  9.20%. 
A)  7.5%. 
B)  8.11%. 
C)  9.25%. 
D)  9.20%.

Question 17

Figure 10-1  
-Refer to Figure 10-1. Given a face value of $1,000, a price of $900, and quantity of Q1, the interest rate on the bond is

Accepted Answer

A)  1.11%. 
B)  10.0%. 
C)  11.1%. 
D)  17.6%. 
A)  1.11%. 
B)  10.0%. 
C)  11.1%. 
D)  17.6%.

Question 18

Figure 10-8  
-Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap

Accepted Answer

A)  by pursuing an expansionary monetary policy to raise the interest rate and increase short run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and increase short run aggregate supply. 
A)  by pursuing an expansionary monetary policy to raise the interest rate and increase short run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and increase short run aggregate supply.

Question 19

An increase in the supply of bonds generates

Accepted Answer

A)  an increase in both the interest rate and the exchange rate. 
B)  a decrease in both the interest rate and the exchange rate. 
C)  an increase in the interest rate and a decrease in the exchange rate. 
D)  a decrease in the interest rate and an increase in the exchange rate. 
A)  an increase in both the interest rate and the exchange rate. 
B)  a decrease in both the interest rate and the exchange rate. 
C)  an increase in the interest rate and a decrease in the exchange rate. 
D)  a decrease in the interest rate and an increase in the exchange rate.

Question 20

Scenario 1
Consider two money management strategies. The first strategy is called the cash strategy in which an individual deposits her monthly earnings in a checking account and draws down equal amounts each day to finance her daily expenditures. Assume that she earns no interest on her checking accounts and funds are exhausted at the end of the month. The second strategy is called the bond fund strategy. Here the individual deposits one-quarter of her earnings in a checking account and the remaining three-quarters in a bond fund. The bond fund pays 1% interest per month. At the end of the week when the money in the checking account is exhausted, the individual replenishes it by withdrawing another one-quarter of her earnings from the bond fund for the next week. This process is repeated at the end of the second week and third week until the bond fund is exhausted.
-Refer to Scenario 1. At low interest rates, an individual

Accepted Answer

A)  is more likely to adopt the bond fund strategy. 
B)  might favor the simple cash strategy because the opportunity cost has increased. 
C)  might favor the simple cash strategy because the interest foregone is minimal. 
D)  might be indifferent between the two strategies because the cost of transferring funds between interest earning assets and checkable deposits falls. 
A)  is more likely to adopt the bond fund strategy. 
B)  might favor the simple cash strategy because the opportunity cost has increased. 
C)  might favor the simple cash strategy because the interest foregone is minimal. 
D)  might be indifferent between the two strategies because the cost of transferring funds between interest earning assets and checkable deposits falls.

Figure 10-4 -Refer to Figure 10-4. Which of the following could cause the demand curve to shift from D₂ to D₁?

The supply of bonds 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

Figure 10-7 -Refer to Figure 10-7. The increase in money supply leads to a(n)

All else constant, a decrease in the supply of money will lead to

Figure 10-3 -Refer to Figure 10-3. In equilibrium the interest rate is

When interest rates fall, people will be willing to hold more money.

Alexa keeps $500 readily accessible in her checking account so that she can take advantage of changes in the prices of other financial assets. This illustrates the

Figure 10-3 -Refer to Figure 10-3. The vertical money supply curve implies that

Figure 10-7 -Refer to Figure 10-7. Following the increase in money supply, at the original interest rate of 6%, there is

If bond prices fall,

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

Which of the following events is likely to generate a supply of U.S. dollars in the foreign exchange market?

All else constant, an increase in the supply of

An increase in the supply of money will lead to a(n)

A $1,000 bond, which matures in one year, has a price of $925. The interest rate on this bond is

Figure 10-1 -Refer to Figure 10-1. Given a face value of $1,000, a price of $900, and quantity of Q₁, the interest rate on the bond is

Figure 10-8 -Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap

An increase in the supply of bonds generates

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 10-4 -Refer to Figure 10-4. Which of the following could cause the demand curve to shift from D2 to D1?

The supply of bonds 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

Figure 10-7 -Refer to Figure 10-7. The increase in money supply leads to a(n)

All else constant, a decrease in the supply of money will lead to

Figure 10-3 -Refer to Figure 10-3. In equilibrium the interest rate is

When interest rates fall, people will be willing to hold more money.

Alexa keeps $500 readily accessible in her checking account so that she can take advantage of changes in the prices of other financial assets. This illustrates the

Figure 10-3 -Refer to Figure 10-3. The vertical money supply curve implies that

Figure 10-7 -Refer to Figure 10-7. Following the increase in money supply, at the original interest rate of 6%, there is

If bond prices fall,

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

Which of the following events is likely to generate a supply of U.S. dollars in the foreign exchange market?

All else constant, an increase in the supply of

An increase in the supply of money will lead to a(n)

A $1,000 bond, which matures in one year, has a price of $925. The interest rate on this bond is

Figure 10-1 -Refer to Figure 10-1. Given a face value of $1,000, a price of $900, and quantity of Q1, the interest rate on the bond is

Figure 10-8 -Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap

An increase in the supply of bonds generates

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

Figure 10-4 -Refer to Figure 10-4. Which of the following could cause the demand curve to shift from D₂ to D₁?

Figure 10-1 -Refer to Figure 10-1. Given a face value of $1,000, a price of $900, and quantity of Q₁, the interest rate on the bond is