Question 1

A fall in the price of bonds may lead to a(n):

Accepted Answer

A)  decrease in aggregate demand and the price level due to a decrease in net exports. 
B)  decrease in aggregate demand and an increase in the price level due to a decrease in investment. 
C)  increase in aggregate demand due to an increase in net exports. 
D)  increase in aggregate demand due to an increase in investment. 
A)  decrease in aggregate demand and the price level due to a decrease in net exports. 
B)  decrease in aggregate demand and an increase in the price level due to a decrease in investment. 
C)  increase in aggregate demand due to an increase in net exports. 
D)  increase in aggregate demand due to an increase in investment.

Question 2

In the textbook model, wealth is held in two forms: money and in bond funds. Which of the following statements are true?
I. Money and bond funds earn the same interest rates in a well functioning money market.
II. Money is a more liquid asset compared to bond funds.
III. Bond funds are interest earning assets while money generally is not.
IV. The difference between the interest rates paid on money deposits and the interest return available from bonds is the cost of holding money.

Accepted Answer

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

Question 3

An increase in bond prices accompanies a decrease in interest rates.

Accepted Answer

A) True 
 B)False

Question 4

Use the following to answer questions .
Exhibit: A Shift in Money Supply  
-(Exhibit: A Shift in Money Supply) What happens in the product market as a result of the increase in money supply?

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 5

An increase in financial innovations such as increased network of ATM machines and the widespread acceptance of debit cards

Accepted Answer

A)  will shift the demand for money to the right. 
B)  will shift the demand for money to the left. 
C)  increases the quantity of money people want to hold at each interest rate. 
D)  decreases the quantity of money people want to hold at each interest rate. 
A)  will shift the demand for money to the right. 
B)  will shift the demand for money to the left. 
C)  increases the quantity of money people want to hold at each interest rate. 
D)  decreases the quantity of money people want to hold at each interest rate.

Question 6

The interest rate on a bond is

Accepted Answer

A)  the difference between the face value and the bond price, expressed as a percentage of the face value. 
B)  the difference between the face value and the bond price, expressed as a percentage of the bond price. 
C)  the ratio of the face value and the bond price, expressed as a percentage. 
D)  the difference between the face value and the yield, expressed as a percentage of the bond price. 
A)  the difference between the face value and the bond price, expressed as a percentage of the face value. 
B)  the difference between the face value and the bond price, expressed as a percentage of the bond price. 
C)  the ratio of the face value and the bond price, expressed as a percentage. 
D)  the difference between the face value and the yield, expressed as a percentage of the bond price.

Question 7

Suppose the Fed announces that it expects interest rates to fall in the next quarter. What happens to the demand for money today?

Accepted Answer

A)  The precautionary demand for money goes up. 
B)  The speculative demand for money goes up. 
C)  The transaction demand for money goes down. 
D)  The speculative demand for money goes down. 
A)  The precautionary demand for money goes up. 
B)  The speculative demand for money goes up. 
C)  The transaction demand for money goes down. 
D)  The speculative demand for money goes down.

Question 8

The transactions demand for money is the money households and firms hold in order to pay for goods and services they buy.

Accepted Answer

A) True 
 B)False

Question 9

Higher interest rates tend to increase the demand for money.

Accepted Answer

A) True 
 B)False

Question 10

When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money.

Accepted Answer

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

Question 11

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 by selling bonds. In the bond market,

Accepted Answer

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

Question 12

Use the following to answer questions .
Exhibit: A Shift in Money Supply  
-(Exhibit: A Shift in Money Supply) What could have caused the money supply curve to shift from S1 to S2?

Accepted Answer

A)  an open market purchase conducted by the Fed 
B)  an open market sale conducted by the Fed 
C)  an increase in tastes and preferences in favor of holding more money 
D)  an increase in the reserve requirement ratio 
A)  an open market purchase conducted by the Fed 
B)  an open market sale conducted by the Fed 
C)  an increase in tastes and preferences in favor of holding more money 
D)  an increase in the reserve requirement ratio

Question 13

When the Fed sells government bonds in the open market, interest rates will rise.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following decreases the demand for money?

Accepted Answer

A)  an increase in income 
B)  an increase in real GDP 
C)  a decrease in the price level 
D)  expectations of higher bond prices 
A)  an increase in income 
B)  an increase in real GDP 
C)  a decrease in the price level 
D)  expectations of higher bond prices

Question 15

The price of a bond is determined by

Accepted Answer

A)  the seller. 
B)  the buyer. 
C)  the demand for and supply of bonds. 
D)  the investment bank that auctions off the bonds. 
A)  the seller. 
B)  the buyer. 
C)  the demand for and supply of bonds. 
D)  the investment bank that auctions off the bonds.

Question 16

Money held for contingencies reflects the _______ demand for money.

Accepted Answer

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

Question 17

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 18

An increase in the money supply by the Federal Reserve is likely to increase
I. consumption expenditures
II. investment expenditures
III. interest rates
IV. the exchange rate

Accepted Answer

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

Question 19

Explain what happens in the bond market when the Fed conducts an open market purchase. A complete answer should explain what happens to bond prices, the quantity of bonds traded and the interest rate. Illustrate your answer with a demand-supply graph of the bond market.

Accepted Answer

When the Fed conducts an open market pur

Question 20

Action taken by the Fed to reduce the money supply will tend, all other things unchanged,

Accepted Answer

A)  to reduce investment. 
B)  to increase investment. 
C)  to have no effect on net exports. 
D)  to increase real GDP and the price level. 
A)  to reduce investment. 
B)  to increase investment. 
C)  to have no effect on net exports. 
D)  to increase real GDP and the price level.

A fall in the price of bonds may lead to a(n):

An increase in bond prices accompanies a decrease in interest rates.

Use the following to answer questions . Exhibit: A Shift in Money Supply -(Exhibit: A Shift in Money Supply) What happens in the product market as a result of the increase in money supply?

An increase in financial innovations such as increased network of ATM machines and the widespread acceptance of debit cards

The interest rate on a bond is

Suppose the Fed announces that it expects interest rates to fall in the next quarter. What happens to the demand for money today?

The transactions demand for money is the money households and firms hold in order to pay for goods and services they buy.

Higher interest rates tend to increase the demand for money.

When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money.

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 by selling bonds. In the bond market,

Use the following to answer questions . Exhibit: A Shift in Money Supply -(Exhibit: A Shift in Money Supply) What could have caused the money supply curve to shift from S₁ to S₂?

When the Fed sells government bonds in the open market, interest rates will rise.

Which of the following decreases the demand for money?

The price of a bond is determined by

Money held for contingencies reflects the _______ demand for money.

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

An increase in the money supply by the Federal Reserve is likely to increase I. consumption expenditures II. investment expenditures III. interest rates IV. the exchange rate

Explain what happens in the bond market when the Fed conducts an open market purchase. A complete answer should explain what happens to bond prices, the quantity of bonds traded and the interest rate. Illustrate your answer with a demand-supply graph of the bond market.

Action taken by the Fed to reduce the money supply will tend, all other things unchanged,

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

A fall in the price of bonds may lead to a(n):

An increase in bond prices accompanies a decrease in interest rates.

Use the following to answer questions . Exhibit: A Shift in Money Supply -(Exhibit: A Shift in Money Supply) What happens in the product market as a result of the increase in money supply?

An increase in financial innovations such as increased network of ATM machines and the widespread acceptance of debit cards

The interest rate on a bond is

Suppose the Fed announces that it expects interest rates to fall in the next quarter. What happens to the demand for money today?

The transactions demand for money is the money households and firms hold in order to pay for goods and services they buy.

Higher interest rates tend to increase the demand for money.

When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money.

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 by selling bonds. In the bond market,

Use the following to answer questions . Exhibit: A Shift in Money Supply -(Exhibit: A Shift in Money Supply) What could have caused the money supply curve to shift from S1 to S2?

When the Fed sells government bonds in the open market, interest rates will rise.

Which of the following decreases the demand for money?

The price of a bond is determined by

Money held for contingencies reflects the _______ demand for money.

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

An increase in the money supply by the Federal Reserve is likely to increase I. consumption expenditures II. investment expenditures III. interest rates IV. the exchange rate

Explain what happens in the bond market when the Fed conducts an open market purchase. A complete answer should explain what happens to bond prices, the quantity of bonds traded and the interest rate. Illustrate your answer with a demand-supply graph of the bond market.

Action taken by the Fed to reduce the money supply will tend, all other things unchanged,

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

Use the following to answer questions . Exhibit: A Shift in Money Supply -(Exhibit: A Shift in Money Supply) What could have caused the money supply curve to shift from S₁ to S₂?