Question 1

An increase in the supply of bonds leads to an increase in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions .
Exhibit: A Shift in Money Demand  
-(Exhibit: A Shift in Money Demand) Which of the following could cause the demand curve to shift from D2 to D1?

Accepted Answer

A)  a decrease in the costs of transferring funds between money and non-money accounts 
B)  an increase in the interest rate 
C)  a decrease in the price level 
D)  greater preferences by consumers for holding money 
A)  a decrease in the costs of transferring funds between money and non-money accounts 
B)  an increase in the interest rate 
C)  a decrease in the price level 
D)  greater preferences by consumers for holding money

Question 3

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 4

The supply of bonds curve slopes upwards because

Accepted Answer

A)  at higher prices, bonds pay higher interest which makes them more attractive to suppliers. 
B)  lower prices raises the cost of borrowing which makes them less attractive to suppliers. 
C)  at lower prices, bonds pay higher interest which makes them more attractive to suppliers. 
D)  higher prices raise the cost of borrowing which makes them less attractive to suppliers. 
A)  at higher prices, bonds pay higher interest which makes them more attractive to suppliers. 
B)  lower prices raises the cost of borrowing which makes them less attractive to suppliers. 
C)  at lower prices, bonds pay higher interest which makes them more attractive to suppliers. 
D)  higher prices raise the cost of borrowing which makes them less attractive to suppliers.

Question 5

What are the three motives for holding money?

Accepted Answer

A)  the medium of exchange motive, the store of value motive, and the unit of account motive 
B)  the transaction motive, the speculative motive, and the liquidity motive 
C)  the transaction motive, the investment motive, and the liquidity motive 
D)  the transaction motive, the speculative motive, and the precautionary motive 
A)  the medium of exchange motive, the store of value motive, and the unit of account motive 
B)  the transaction motive, the speculative motive, and the liquidity motive 
C)  the transaction motive, the investment motive, and the liquidity motive 
D)  the transaction motive, the speculative motive, and the precautionary motive

Question 6

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.
In which strategy will the quantity of money demanded be greater?

Accepted Answer

A)  the cash strategy 
B)  the bond fund strategy 
C)  It will be the same in either strategy. 
D)  There is insufficient information to answer the question. 
A)  the cash strategy 
B)  the bond fund strategy 
C)  It will be the same in either strategy. 
D)  There is insufficient information to answer the question.

Question 7

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 8

Use the following to answer questions .
Exhibit: A Shift in Money Demand  
-(Exhibit: A Shift in Money Demand) What happens in the bond market as a result of the shift in the money demand curve from D1 to D2?

Accepted Answer

A)  The demand for bonds increases. 
B)  The demand for bonds decreases. 
C)  The supply of bonds increases. 
D)  The supply of bonds decreases. 
A)  The demand for bonds increases. 
B)  The demand for bonds decreases. 
C)  The supply of bonds increases. 
D)  The supply of bonds decreases.

Question 9

Use the following to answer questions .
Exhibit: Changes in the Money Supply  
-(Exhibit: Changes in the Money Supply) Following the increase in money supply, at the original interest rate of 6%, there is

Accepted Answer

A)  an excess demand for money. 
B)  an excess supply of money. 
C)  an equilibrium in the money market. 
D)  pressure for the interest rate to rise. 
A)  an excess demand for money. 
B)  an excess supply of money. 
C)  an equilibrium in the money market. 
D)  pressure for the interest rate to rise.

Question 10

If bond prices fall,

Accepted Answer

A)  interest rates rise, which in turn, discourage investment. 
B)  interest rates fall, which in turn, discourage investment. 
C)  interest rates rise, which in turn, stimulate investment. 
D)  interest rates fall, which in turn, stimulate investment. 
A)  interest rates rise, which in turn, discourage investment. 
B)  interest rates fall, which in turn, discourage investment. 
C)  interest rates rise, which in turn, stimulate investment. 
D)  interest rates fall, which in turn, stimulate investment.

Question 11

Which of the following statements is true about bonds?

Accepted Answer

A)  Buyers 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 inversely related to its price. 
A)  Buyers 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 inversely related to its price.

Question 12

A higher U.S. exchange rate means that

Accepted Answer

A)  foreign products are now more expensive to U.S. citizens. 
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 to U.S. citizens. 
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 13

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.

Question 14

A $100 bond, which matures in one year, has a price of $75. The interest rate on this bond is

Accepted Answer

A)  20%. 
B)  25%. 
C)  33 1/3%. 
D)  50%. 
A)  20%. 
B)  25%. 
C)  33 1/3%. 
D)  50%.

Question 15

If a British student pays her way to attend Harvard University, her action will:

Accepted Answer

A)  cause the exchange rate of the British pound to rise. 
B)  cause the exchange rate of the U.S. dollar to fall. 
C)  change the supply of dollars in the foreign currency market. 
D)  change the supply of pounds in the foreign currency market. 
A)  cause the exchange rate of the British pound to rise. 
B)  cause the exchange rate of the U.S. dollar to fall. 
C)  change the supply of dollars in the foreign currency market. 
D)  change the supply of pounds in the foreign currency market.

Question 16

Use the following to answer questions .
Exhibit: The Bond Market  
-(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q1, the interest rate on the bond is

Accepted Answer

A)  1.11%. 
B)  10.0%. 
C)  11.1%. 
D)  17.6%. 
A)  1.11%. 
B)  10.0%. 
C)  11.1%. 
D)  17.6%.

Question 17

What happens in the money market when there is a decrease in the supply of money?

Accepted Answer

A)  The equilibrium quantity of money increases and the equilibrium interest rate increases. 
B)  The equilibrium quantity of money increases and the equilibrium interest rate decreases. 
C)  The equilibrium quantity of money decreases and the equilibrium interest rate increases. 
D)  The equilibrium quantity of money decreases and the equilibrium interest rate decreases. 
A)  The equilibrium quantity of money increases and the equilibrium interest rate increases. 
B)  The equilibrium quantity of money increases and the equilibrium interest rate decreases. 
C)  The equilibrium quantity of money decreases and the equilibrium interest rate increases. 
D)  The equilibrium quantity of money decreases and the equilibrium interest rate decreases.

Question 18

Which of the following is an index of exchange rates?

Accepted Answer

A)  import-export ratio 
B)  trade-weighted exchange rate 
C)  trade balance index 
D)  foreign price-domestic price ratio 
A)  import-export ratio 
B)  trade-weighted exchange rate 
C)  trade balance index 
D)  foreign price-domestic price ratio

Question 19

The supply curve of money shows, all other things unchanged, the

Accepted Answer

A)  quantity of money supplied at each price of bonds. 
B)  quantity of money supplied at each bond rate. 
C)  quantity of money supplied at each interest rate. 
D)  amount of money people supply at a specific interest rate. 
A)  quantity of money supplied at each price of bonds. 
B)  quantity of money supplied at each bond rate. 
C)  quantity of money supplied at each interest rate. 
D)  amount of money people supply at a specific interest rate.

Question 20

An increase in the money supply will shift the aggregate demand curve to the left, resulting in a lower equilibrium price level and a lower equilibrium real GDP.

Accepted Answer

A) True 
 B)False

An increase in the supply of bonds leads to an increase in aggregate demand.

Use the following to answer questions . Exhibit: A Shift in Money Demand -(Exhibit: A Shift in Money Demand) Which of the following could cause the demand curve to shift from D₂ to D₁?

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

The supply of bonds curve slopes upwards because

What are the three motives for holding money?

All else constant, an increase in the demand for bonds

Use the following to answer questions . Exhibit: A Shift in Money Demand -(Exhibit: A Shift in Money Demand) What happens in the bond market as a result of the shift in the money demand curve from D₁ to D₂?

Use the following to answer questions . Exhibit: Changes in the Money Supply -(Exhibit: Changes in the Money Supply) Following the increase in money supply, at the original interest rate of 6%, there is

If bond prices fall,

Which of the following statements is true about bonds?

A higher U.S. exchange rate means that

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

A $100 bond, which matures in one year, has a price of $75. The interest rate on this bond is

If a British student pays her way to attend Harvard University, her action will:

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q₁, the interest rate on the bond is

What happens in the money market when there is a decrease in the supply of money?

Which of the following is an index of exchange rates?

The supply curve of money shows, all other things unchanged, the

An increase in the money supply will shift the aggregate demand curve to the left, resulting in a lower equilibrium price level and a lower equilibrium real GDP.

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 supply of bonds leads to an increase in aggregate demand.

Use the following to answer questions . Exhibit: A Shift in Money Demand -(Exhibit: A Shift in Money Demand) Which of the following could cause the demand curve to shift from D2 to D1?

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

The supply of bonds curve slopes upwards because

What are the three motives for holding money?

All else constant, an increase in the demand for bonds

Use the following to answer questions . Exhibit: A Shift in Money Demand -(Exhibit: A Shift in Money Demand) What happens in the bond market as a result of the shift in the money demand curve from D1 to D2?

Use the following to answer questions . Exhibit: Changes in the Money Supply -(Exhibit: Changes in the Money Supply) Following the increase in money supply, at the original interest rate of 6%, there is

If bond prices fall,

Which of the following statements is true about bonds?

A higher U.S. exchange rate means that

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

A $100 bond, which matures in one year, has a price of $75. The interest rate on this bond is

If a British student pays her way to attend Harvard University, her action will:

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q1, the interest rate on the bond is

What happens in the money market when there is a decrease in the supply of money?

Which of the following is an index of exchange rates?

The supply curve of money shows, all other things unchanged, the

An increase in the money supply will shift the aggregate demand curve to the left, resulting in a lower equilibrium price level and a lower equilibrium real GDP.

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 Demand -(Exhibit: A Shift in Money Demand) Which of the following could cause the demand curve to shift from D₂ to D₁?

Use the following to answer questions . Exhibit: A Shift in Money Demand -(Exhibit: A Shift in Money Demand) What happens in the bond market as a result of the shift in the money demand curve from D₁ to D₂?

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q₁, the interest rate on the bond is