Question 1

At higher interest rates, people will hold more money.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  positive. 
D)  negative. 
A)  vertical. 
B)  horizontal. 
C)  positive. 
D)  negative.

Question 3

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 4

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 5

Suppose the Fed conducts an open market sale. We can expect this transaction to

Accepted Answer

A)  reduce the money supply, increase bond prices, and lower interest rates. 
B)  increase the money supply, lower bond prices, and lower interest rates. 
C)  increase the money supply, raise bond prices, and lower interest rates. 
D)  reduce the money supply, reduce bond prices, and increase interest rates. 
A)  reduce the money supply, increase bond prices, and lower interest rates. 
B)  increase the money supply, lower bond prices, and lower interest rates. 
C)  increase the money supply, raise bond prices, and lower interest rates. 
D)  reduce the money supply, reduce bond prices, and increase interest rates.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

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

Accepted Answer

A)  0.8% 
B)  1.25% 
C)  20% 
D)  25% 
A)  0.8% 
B)  1.25% 
C)  20% 
D)  25%

Question 10

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

Accepted Answer

A)  smaller speculative balances because they expect bond prices to fall further. 
B)  larger speculative balances because they expect bond prices to fall further. 
C)  smaller speculative balances because they do not expect bond prices to fall further. 
D)  larger speculative balances because they do not expect bond prices to fall further. 
A)  smaller speculative balances because they expect bond prices to fall further. 
B)  larger speculative balances because they expect bond prices to fall further. 
C)  smaller speculative balances because they do not expect bond prices to fall further. 
D)  larger speculative balances because they do not expect bond prices to fall further.

Question 11

Use the following to answer questions .
Exhibit: The Money Supply and Aggregate Demand  
-(Exhibit: The Money Supply and Aggregate Demand) 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).

Question 12

Suppose the government issues bonds to finance an increase in government spending. In the bond market,

Accepted Answer

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

Question 13

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 14

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 15

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 16

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 17

Suppose the Fed conducts an open market purchase. We can expect this transaction to

Accepted Answer

A)  reduce the money supply, increase bond prices, and lower interest rates. 
B)  increase the money supply, lower bond prices, and lower interest rates. 
C)  increase the money supply, raise bond prices, and lower interest rates. 
D)  reduce the money supply, reduce bond prices, and increase interest rates. 
A)  reduce the money supply, increase bond prices, and lower interest rates. 
B)  increase the money supply, lower bond prices, and lower interest rates. 
C)  increase the money supply, raise bond prices, and lower interest rates. 
D)  reduce the money supply, reduce bond prices, and increase interest rates.

Question 18

Use the following to answer questions .
Exhibit: The Money Supply and Aggregate Demand  
-(Exhibit: The Money Supply and Aggregate Demand) If the economy is experiencing an inflationary gap, the Fed would

Accepted Answer

A)  buy government bonds, which would increase the money supply and decrease interest rates. The results of such a policy are represented in Panel (a). 
B)  sell government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
C)  buy government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
D)  sell government bonds, which would increase the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
A)  buy government bonds, which would increase the money supply and decrease interest rates. The results of such a policy are represented in Panel (a). 
B)  sell government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
C)  buy government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
D)  sell government bonds, which would increase the money supply and increase interest rates. The results of such a policy are represented in Panel (b).

Question 19

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 20

Use the following to answer questions .
Exhibit: Changes in the Money Supply  
-(Exhibit: Changes in the Money Supply) 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.

At higher interest rates, people will hold more money.

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

If the U.S. exchange rate falls,

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

Suppose the Fed conducts an open market sale. We can expect this transaction to

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

An increase in the demand for bonds

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.

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

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

Use the following to answer questions . Exhibit: The Money Supply and Aggregate Demand -(Exhibit: The Money Supply and Aggregate Demand) An increase in U.S. interest rates would

Suppose the government issues bonds to finance an increase in government spending. In the bond market,

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

An increase in the demand for bonds generates

A bond is

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

Suppose the Fed conducts an open market purchase. We can expect this transaction to

Use the following to answer questions . Exhibit: The Money Supply and Aggregate Demand -(Exhibit: The Money Supply and Aggregate Demand) If the economy is experiencing an inflationary gap, the Fed would

The demand for money curve shows

Use the following to answer questions . Exhibit: Changes in the Money Supply -(Exhibit: Changes in the Money Supply) The increase in money supply leads to a(n)

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Exam 10: Financial Markets and the Economy

At higher interest rates, people will hold more money.

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

If the U.S. exchange rate falls,

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

Suppose the Fed conducts an open market sale. We can expect this transaction to

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

An increase in the demand for bonds

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.

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

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

Use the following to answer questions . Exhibit: The Money Supply and Aggregate Demand -(Exhibit: The Money Supply and Aggregate Demand) An increase in U.S. interest rates would

Suppose the government issues bonds to finance an increase in government spending. In the bond market,

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

An increase in the demand for bonds generates

A bond is

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

Suppose the Fed conducts an open market purchase. We can expect this transaction to

Use the following to answer questions . Exhibit: The Money Supply and Aggregate Demand -(Exhibit: The Money Supply and Aggregate Demand) If the economy is experiencing an inflationary gap, the Fed would

The demand for money curve shows

Use the following to answer questions . Exhibit: Changes in the Money Supply -(Exhibit: Changes in the Money Supply) The increase in money supply leads to a(n)

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters