Question 1

An increase in the money supply will lower the equilibrium rate of interest.

Accepted Answer

A) True 
 B)False

Question 2

Explain the link between U.S. interest rates, the dollar exchange rate, and net exports. Explain why high interest rates in the United States cause net exports to fall and low interest rates cause net exports to rise?

Accepted Answer

The link between U.S. interest rates, th

Question 3

Consider Scenarios 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.
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.

Question 4

Which of the following statements is true? All other things unchanged,

Accepted Answer

A)  when bond prices rise, real GDP and the price level rise. 
B)  when bond prices fall, real GDP rises and the price level falls. 
C)  when bond prices rise, the interest rate rises, and aggregate demand and the price level fall. 
D)  when bond prices fall, the interest rate and aggregate demand fall. 
A)  when bond prices rise, real GDP and the price level rise. 
B)  when bond prices fall, real GDP rises and the price level falls. 
C)  when bond prices rise, the interest rate rises, and aggregate demand and the price level fall. 
D)  when bond prices fall, the interest rate and aggregate demand fall.

Question 5

The Fed could conduct an open market sale to eliminate an inflationary gap.

Accepted Answer

A) True 
 B)False

Question 6

When the Fed conducts an open market sale, it

Accepted Answer

A)  raises interest rates and increases the money supply. 
B)  raises interest rates and reduces the money supply. 
C)  lowers interest rates and reduces the money supply. 
D)  lowers interest rates and increases the money supply. 
A)  raises interest rates and increases the money supply. 
B)  raises interest rates and reduces the money supply. 
C)  lowers interest rates and reduces the money supply. 
D)  lowers interest rates and increases the money supply.

Question 7

If the prices of bonds go up, the interest rates will fall and the quantity of investment demanded will rise.

Accepted Answer

A) True 
 B)False

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

The face value of a bond is

Accepted Answer

A)  the price an individual pays to purchase the bond. 
B)  the amount that the issuer will have to pay upon maturity. 
C)  the market value of the bond. 
D)  the rate of return on the bond. 
A)  the price an individual pays to purchase the bond. 
B)  the amount that the issuer will have to pay upon maturity. 
C)  the market value of the bond. 
D)  the rate of return on the bond.

Question 10

Which of the following does not cause the money demand curve to shift?

Accepted Answer

A)  a change in the interest rate 
B)  a change in the price level 
C)  a change in transfer costs 
D)  a change in real GDP 
A)  a change in the interest rate 
B)  a change in the price level 
C)  a change in transfer costs 
D)  a change in real GDP

Question 11

Use the following to answer questions.
Exhibit: The Money Market  
-(Exhibit: The Money Market) 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 12

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 13

Use the following to answer questions.
Exhibit: The Money Market  
-(Exhibit: The Money Market) 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 14

Explain the relationships among the face value of a bond, the price of a bond, and the interest rate paid on the bond.

Accepted Answer

The face value of a bond is the amount o

Question 15

As a result of an increase in the money supply, the aggregate demand will shift to the left.

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 18

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 19

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 20

An increase 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.

An increase in the money supply will lower the equilibrium rate of interest.

Explain the link between U.S. interest rates, the dollar exchange rate, and net exports. Explain why high interest rates in the United States cause net exports to fall and low interest rates cause net exports to rise?

Which of the following statements is true? All other things unchanged,

The Fed could conduct an open market sale to eliminate an inflationary gap.

When the Fed conducts an open market sale, it

If the prices of bonds go up, the interest rates will fall and the quantity of investment demanded will rise.

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

The face value of a bond is

Which of the following does not cause the money demand curve to shift?

Use the following to answer questions. Exhibit: The Money Market -(Exhibit: The Money Market) In equilibrium the interest rate is

In deciding how much money to hold, individuals

Use the following to answer questions. Exhibit: The Money Market -(Exhibit: The Money Market) The vertical money supply curve implies that

Explain the relationships among the face value of a bond, the price of a bond, and the interest rate paid on the bond.

As a result of an increase in the money supply, the aggregate demand will shift to the left.

Financial markets are

Which of the following statements is true about bonds?

Currency rates of exchange are determined by

A buyer of a newly-issued bond

An increase in the supply of money will lead 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

An increase in the money supply will lower the equilibrium rate of interest.

Explain the link between U.S. interest rates, the dollar exchange rate, and net exports. Explain why high interest rates in the United States cause net exports to fall and low interest rates cause net exports to rise?

Which of the following statements is true? All other things unchanged,

The Fed could conduct an open market sale to eliminate an inflationary gap.

When the Fed conducts an open market sale, it

If the prices of bonds go up, the interest rates will fall and the quantity of investment demanded will rise.

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

The face value of a bond is

Which of the following does not cause the money demand curve to shift?

Use the following to answer questions. Exhibit: The Money Market -(Exhibit: The Money Market) In equilibrium the interest rate is

In deciding how much money to hold, individuals

Use the following to answer questions. Exhibit: The Money Market -(Exhibit: The Money Market) The vertical money supply curve implies that

Explain the relationships among the face value of a bond, the price of a bond, and the interest rate paid on the bond.

As a result of an increase in the money supply, the aggregate demand will shift to the left.

Financial markets are

Which of the following statements is true about bonds?

Currency rates of exchange are determined by

A buyer of a newly-issued bond

An increase in the supply of money will lead 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