Exam 10: Financial Markets and the Economy

Use the following to answer questions . Exhibit: The Money Supply and Aggregate Demand -(Exhibit: The Money Supply and Aggregate Demand) If the Fed wants to encourage investment and expand the economy, it would conduct

Suppose the United States experiences a rise in the U.S. dollar price of foreign exchange.

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point b, the Federal Reserve can close the output gap

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

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

If bond prices rise,

An increase in the U.S. exchange rate will make U.S. exports.

Which of the following statements is true?

A higher exchange rate for the U.S. dollar means that

Some economists have proposed a new definition of money that would better track money demand. One such measure is the MZM or "money zero maturity." What kind of items will be included in this measure?

Holding everything else unchanged, higher interest rates in the U.S.

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

Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If your entire earnings are deposited in your checking account at the beginning of the month, then your average quantity of money demanded is

An increase in the supply of bonds generates

The demand curve for money curve shows, all other things unchanged, the

Consider Scenario 1 below: 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. An individual is more likely to adopt the bond fund strategy when

The creation of savings plans such as savings deposits and money market mutual accounts that allow easy transfer of funds between interest-earning assets and checkable deposits tends to

Higher interest rates in the United States will attract foreigners to U.S interest-earning assets. This

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point c,

When the price of a bond rises, the interest rate paid on the bond also rises.