Question 1

Figure 10-8  
-Refer to Figure 10-8. If the economy is at point c, an open market purchase would cause

Accepted Answer

A)  a shift of the short run aggregate supply curve from AS1 to AS2. 
B)  a shift of the short run aggregate supply curve from AS2 to AS1. 
C)  a shift of the aggregate demand curve from AD1 to AD2. 
D)  a shift of the aggregate demand curve from AD2 to AD1. 
A)  a shift of the short run aggregate supply curve from AS1 to AS2. 
B)  a shift of the short run aggregate supply curve from AS2 to AS1. 
C)  a shift of the aggregate demand curve from AD1 to AD2. 
D)  a shift of the aggregate demand curve from AD2 to AD1.

Question 2

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate an inflationary 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.

Accepted Answer

To eliminate an inflationary gap, the Fe

Question 3

All else constant, an increase in the demand for bonds

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 4

Why is there a negative relationship between the interest rate and the quantity of money demanded?

Accepted Answer

The negative relationship between the in

Question 5

Which of the following statements is true about bonds?

Accepted Answer

A)  Sellers 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 directly related to its price. 
A)  Sellers 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 directly related to its price.

Question 6

The demand for money is negatively related to

Accepted Answer

A)  the interest rate and positively related to real GDP. 
B)  the interest rate and positively related to unemployment. 
C)  real GDP and positively related to the interest rate. 
D)  real GDP and positively related to the money supply. 
A)  the interest rate and positively related to real GDP. 
B)  the interest rate and positively related to unemployment. 
C)  real GDP and positively related to the interest rate. 
D)  real GDP and positively related to the money supply.

Question 7

Which of the following events is likely to generate a demand for 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 begin her first year of college at Oxford, England. 
C)  Wal-Mart imports 5,000 bicycles from China to sell in its stores. 
D)  The Illinois Chamber of Commerce will finance and lead a trade mission to India. 
A)  A Saudi Arabian citizen buys a condominium in New York. 
B)  An American student will begin her first year of college at Oxford, England. 
C)  Wal-Mart imports 5,000 bicycles from China to sell in its stores. 
D)  The Illinois Chamber of Commerce will finance and lead a trade mission to India.

Question 8

Figure 10-4  
-Refer to Figure 10-4. What happens in the product market as a result of the increase in money demand?

Accepted Answer

A)  The aggregate demand curve shifts to the left. 
B)  The aggregate demand curve shifts to the right. 
C)  The short-run aggregate supply curve shifts to the left. 
D)  The short-run aggregate supply curve shifts to the right. 
A)  The aggregate demand curve shifts to the left. 
B)  The aggregate demand curve shifts to the right. 
C)  The short-run aggregate supply curve shifts to the left. 
D)  The short-run aggregate supply curve shifts to the right.

Question 9

The _______ demand for money is holding money in expectation that bond prices and the prices of other assets might change.

Accepted Answer

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

Question 10

An increase in the demand for 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 11

The demand for money curve shows

Accepted Answer

A)  the quantity of money demanded at each interest rate, holding all other determinants unchanged. 
B)  the quantity of money made available by the Federal Reserves, holding all other determinants unchanged. 
C)  the quantity of money demanded at each bond price, holding all other determinants unchanged. 
D)  the quantity of money demanded at price level, holding all other determinants unchanged. 
A)  the quantity of money demanded at each interest rate, holding all other determinants unchanged. 
B)  the quantity of money made available by the Federal Reserves, holding all other determinants unchanged. 
C)  the quantity of money demanded at each bond price, holding all other determinants unchanged. 
D)  the quantity of money demanded at price level, holding all other determinants unchanged.

Question 12

If the quantity of money supplied does not respond to changes in the interest rate, then the money supply curve is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  relatively flat but upward sloping. 
D)  relatively steep but upward sloping. 
A)  vertical. 
B)  horizontal. 
C)  relatively flat but upward sloping. 
D)  relatively steep but upward sloping.

Question 13

A buyer of a newly-issued bond

Accepted Answer

A)  is a borrower of funds. 
B)  is a lender of funds. 
C)  is purchasing ownership in the institution that issues the bonds. 
D)  must be a producer and not a consumer. 
A)  is a borrower of funds. 
B)  is a lender of funds. 
C)  is purchasing ownership in the institution that issues the bonds. 
D)  must be a producer and not a consumer.

Question 14

Holding $10 in your pocket to purchase a piping hot pizza 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 15

If the demand for U.S. dollars goes up, 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 16

If the supply of bonds in the United States decreases, bond prices will rise. When bond prices rise interest rates will

Accepted Answer

A)  fall, which will make U.S. financial assets more attractive to foreigners. 
B)  rise, which will make U.S. financial assets more attractive to foreigners. 
C)  fall, which will make U.S. financial assets less attractive to foreigners. 
D)  rise, which will make U.S. financial assets less attractive to foreigners. 
A)  fall, which will make U.S. financial assets more attractive to foreigners. 
B)  rise, which will make U.S. financial assets more attractive to foreigners. 
C)  fall, which will make U.S. financial assets less attractive to foreigners. 
D)  rise, which will make U.S. financial assets less attractive to foreigners.

Question 17

Which of the following are reasons that caused the Fed to abandon its practice of setting money supply targets? 
I. expiration of the legislation requiring the Fed to do so
II. banking deregulation in the 1980s allowing for MMDAs
III. financial development of retail sweep programs

Accepted Answer

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

Question 18

Financial markets are

Accepted Answer

A)  markets where money is traded between the Fed and economic agents. 
B)  markets where funds accumulated by one group are made available to another group. 
C)  banks interact to lend and borrow reserves. 
D)  the market where capital goods are traded. 
A)  markets where money is traded between the Fed and economic agents. 
B)  markets where funds accumulated by one group are made available to another group. 
C)  banks interact to lend and borrow reserves. 
D)  the market where capital goods are traded.

Question 19

Figure 10-1  
-Refer to Figure 10-1. A movement from S1 to S2, means there was

Accepted Answer

A)  a decrease in borrowing. 
B)  an increase in borrowing. 
C)  a decrease in lending. 
D)  a decrease in the interest rate. 
A)  a decrease in borrowing. 
B)  an increase in borrowing. 
C)  a decrease in lending. 
D)  a decrease in the interest rate.

Question 20

Suppose the U.S. dollar price of the Euro falls. This means that

Accepted Answer

A)  the U.S. exchange rate has risen and the U.S. dollar buys more euros. 
B)  the U.S. exchange rate has risen and the U.S. dollar buys less euros 
C)  the U.S. exchange rate has fallen and the U.S. dollar buys more euros. 
D)  the U.S. exchange rate has fallen and the U.S. dollar buys less euros. 
A)  the U.S. exchange rate has risen and the U.S. dollar buys more euros. 
B)  the U.S. exchange rate has risen and the U.S. dollar buys less euros 
C)  the U.S. exchange rate has fallen and the U.S. dollar buys more euros. 
D)  the U.S. exchange rate has fallen and the U.S. dollar buys less euros.

Figure 10-8 -Refer to Figure 10-8. If the economy is at point c, an open market purchase would cause

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate an inflationary 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.

All else constant, an increase in the demand for bonds

Why is there a negative relationship between the interest rate and the quantity of money demanded?

Which of the following statements is true about bonds?

The demand for money is negatively related to

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

Figure 10-4 -Refer to Figure 10-4. What happens in the product market as a result of the increase in money demand?

The _______ demand for money is holding money in expectation that bond prices and the prices of other assets might change.

An increase in the demand for bonds generates

The demand for money curve shows

If the quantity of money supplied does not respond to changes in the interest rate, then the money supply curve is

A buyer of a newly-issued bond

Holding $10 in your pocket to purchase a piping hot pizza illustrates the

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

If the supply of bonds in the United States decreases, bond prices will rise. When bond prices rise interest rates will

Which of the following are reasons that caused the Fed to abandon its practice of setting money supply targets? I. expiration of the legislation requiring the Fed to do so II. banking deregulation in the 1980s allowing for MMDAs III. financial development of retail sweep programs

Financial markets are

Figure 10-1 -Refer to Figure 10-1. A movement from S₁ to S₂, means there was

Suppose the U.S. dollar price of the Euro falls. This means that

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 10-8 -Refer to Figure 10-8. If the economy is at point c, an open market purchase would cause

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate an inflationary 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.

All else constant, an increase in the demand for bonds

Why is there a negative relationship between the interest rate and the quantity of money demanded?

Which of the following statements is true about bonds?

The demand for money is negatively related to

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

Figure 10-4 -Refer to Figure 10-4. What happens in the product market as a result of the increase in money demand?

The _______ demand for money is holding money in expectation that bond prices and the prices of other assets might change.

An increase in the demand for bonds generates

The demand for money curve shows

If the quantity of money supplied does not respond to changes in the interest rate, then the money supply curve is

A buyer of a newly-issued bond

Holding $10 in your pocket to purchase a piping hot pizza illustrates the

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

If the supply of bonds in the United States decreases, bond prices will rise. When bond prices rise interest rates will

Which of the following are reasons that caused the Fed to abandon its practice of setting money supply targets? I. expiration of the legislation requiring the Fed to do so II. banking deregulation in the 1980s allowing for MMDAs III. financial development of retail sweep programs

Financial markets are

Figure 10-1 -Refer to Figure 10-1. A movement from S1 to S2, means there was

Suppose the U.S. dollar price of the Euro falls. This means that

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 10-1 -Refer to Figure 10-1. A movement from S₁ to S₂, means there was