Question 1

A good that is used as a medium of exchange as well as being a consumption good is called

Accepted Answer

A) a barter money. 
B) a commodity money. 
C) a legal tender. 
D) a debased money. 
A) a barter money. 
B) a commodity money. 
C) a legal tender. 
D) a debased money.

Question 2

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

Accepted Answer

A) purchasing government bonds from the public. 
B) selling government bonds to the public. 
C) selling newly issued government bonds directly to the central bank. 
D) buying newly issued government bonds directly from the central bank. 
A) purchasing government bonds from the public. 
B) selling government bonds to the public. 
C) selling newly issued government bonds directly to the central bank. 
D) buying newly issued government bonds directly from the central bank.

Question 3

A 10% decrease in real income usually leads to ________ in money demand.

Accepted Answer

A) an increase 
B) no change 
C) a decrease of less than 10% 
D) a decrease of 10% 
A) an increase 
B) no change 
C) a decrease of less than 10% 
D) a decrease of 10%

Question 4

Suppose you read in the paper that the Federal Reserve plans to expand the money supply.The Fed is most likely to do this by

Accepted Answer

A) printing more currency and distributing it. 
B) purchasing government bonds from the public. 
C) selling government bonds to the public. 
D) buying newly issued government bonds directly from the government itself. 
A) printing more currency and distributing it. 
B) purchasing government bonds from the public. 
C) selling government bonds to the public. 
D) buying newly issued government bonds directly from the government itself.

Question 5

What happens to M1 and M2 due to each of the following changes?
(a)You take $500 out of your checking account and put it into a passbook savings account.
(b)You take $1000 out of your checking account and buy traveler's checks.
(c)You take $1500 out of your money-market mutual fund and deposit into your checking account.
(d)You cash in $2000 in savings bonds and invest the money in a certificate of deposit.

Accepted Answer

(a)M1 falls $500,M2 is unchang

Question 6

The least liquid asset on this list is

Accepted Answer

A) money. 
B) bonds. 
C) houses. 
D) stocks. 
A) money. 
B) bonds. 
C) houses. 
D) stocks.

Question 7

Which of the following is not part of M1?

Accepted Answer

A) Transaction accounts 
B) Checking accounts 
C) Time deposits 
D) Traveler's checks 
A) Transaction accounts 
B) Checking accounts 
C) Time deposits 
D) Traveler's checks

Question 8

Compared with money,bonds have

Accepted Answer

A) less risk and less liquidity. 
B) less risk and more liquidity. 
C) more risk and less liquidity. 
D) more risk and more liquidity. 
A) less risk and less liquidity. 
B) less risk and more liquidity. 
C) more risk and less liquidity. 
D) more risk and more liquidity.

Question 9

M1 does not include

Accepted Answer

A) MMMFs. 
B) travelers' checks. 
C) currency. 
D) transaction accounts. 
A) MMMFs. 
B) travelers' checks. 
C) currency. 
D) transaction accounts.

Question 10

We shouldn't be concerned about U.S.currency held abroad because

Accepted Answer

A) the currency will never return to the United States. 
B) foreigners use it to buy U.S.bonds. 
C) it represents an interest-free loan to the United States. 
D) foreigners can't spend it in their own countries. 
A) the currency will never return to the United States. 
B) foreigners use it to buy U.S.bonds. 
C) it represents an interest-free loan to the United States. 
D) foreigners can't spend it in their own countries.

Question 11

Money demand is given by
Md/P = 1000 + .2Y - 1000i.
Given that P = 200,Y = 2000,and i = .10,real money demand is equal to

Accepted Answer

A) 1,300. 
B) 1,500. 
C) 260,000. 
D) 300,000. 
A) 1,300. 
B) 1,500. 
C) 260,000. 
D) 300,000.

Question 12

One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

Accepted Answer

A) store of value. 
B) unit of account. 
C) medium of exchange. 
D) standard of deferred payment. 
A) store of value. 
B) unit of account. 
C) medium of exchange. 
D) standard of deferred payment.

Question 13

moneys primary role in the economy comes from the benefits of lowering transactions costs and allowing specialization.This function of money is called

Accepted Answer

A) store of value. 
B) medium of exchange. 
C) standard of deferred payment. 
D) unit of account. 
A) store of value. 
B) medium of exchange. 
C) standard of deferred payment. 
D) unit of account.

Question 14

Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?

Accepted Answer

A) Money demand declines first,then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines. 
A) Money demand declines first,then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines.

Question 15

The opportunity cost of holding currency decreases when

Accepted Answer

A) income decreases. 
B) the interest rate on bonds decreases. 
C) the interest rate on money decreases. 
D) wealth decreases. 
A) income decreases. 
B) the interest rate on bonds decreases. 
C) the interest rate on money decreases. 
D) wealth decreases.

Question 16

Mr.Pierpont has wealth of $200,000.He wants to keep at least $80,000 in bonds at all times,and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account.Currently,he keeps $100,000 in bonds,which pay him 7%.What is the current interest rate on checking accounts?

Accepted Answer

A) 5% 
B) 7% 
C) 9% 
D) 10% 
A) 5% 
B) 7% 
C) 9% 
D) 10%

Question 17

1)The interest on a one-year bond today is 3%;
2)The interest on a one-year bond starting one year from now is expected to be 4% per year;
3)The interest on a one-year bond starting two years from now is expected to be 5% per year;
4)The risk premium on a two-year bond is 0.5%; and
5)The risk premium on a three-year bond is 1.0%.
Use that information to answer the following questions.
a)According to the expectations theory,what is the interest rate today on a two-year bond? Show your work.
b)According to the expectations theory,what is the interest rate today on a three-year bond? Show your work.
c)Plot the yield curve.

Accepted Answer

a)(3% + 4%)/2 + 0.5% = 4.0%
b)

Question 18

Suppose the real money demand function is
Md/P = 2400 + 0.2 Y - 10,000 (r + ?e).
Assume M = 5000,P = 2.0,and ?e = .03.If Y were to increase from 4000 to 5000,then the real interest rate would increase by how many percentage points?

Accepted Answer

A) 2 
B) 4 
C) 5 
D) 7 
A) 2 
B) 4 
C) 5 
D) 7

Question 19

M2 does not include

Accepted Answer

A) Treasury bonds. 
B) passbook savings accounts. 
C) small-denomination time deposits. 
D) M1. 
A) Treasury bonds. 
B) passbook savings accounts. 
C) small-denomination time deposits. 
D) M1.

Question 20

A one-year bond has an interest rate of 5% today.Investors expect that in one year,a one year bond will have an interest rate equal to 7%.According to the expectations theory of the term structure of interest rates,in equilibrium,a two-year bond today will have an interest rate equal to

Accepted Answer

A) 3)0%. 
B) 5)0%. 
C) 5)5%. 
D) 6)0%. 
A) 3)0%. 
B) 5)0%. 
C) 5)5%. 
D) 6)0%.

A good that is used as a medium of exchange as well as being a consumption good is called

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

A 10% decrease in real income usually leads to ________ in money demand.

Suppose you read in the paper that the Federal Reserve plans to expand the money supply.The Fed is most likely to do this by

The least liquid asset on this list is

Which of the following is not part of M1?

Compared with money,bonds have

M1 does not include

We shouldn't be concerned about U.S.currency held abroad because

Money demand is given by Md/P = 1000 + .2Y - 1000i. Given that P = 200,Y = 2000,and i = .10,real money demand is equal to

One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

moneys primary role in the economy comes from the benefits of lowering transactions costs and allowing specialization.This function of money is called

Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?

The opportunity cost of holding currency decreases when

Suppose the real money demand function is Md/P = 2400 + 0.2 Y - 10,000 (r + ?e). Assume M = 5000,P = 2.0,and ?e = .03.If Y were to increase from 4000 to 5000,then the real interest rate would increase by how many percentage points?

M2 does not include

A one-year bond has an interest rate of 5% today.Investors expect that in one year,a one year bond will have an interest rate equal to 7%.According to the expectations theory of the term structure of interest rates,in equilibrium,a two-year bond today will have an interest rate equal to

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

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Exam 7: The Asset Market, Money, and Prices

A good that is used as a medium of exchange as well as being a consumption good is called

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

A 10% decrease in real income usually leads to ________ in money demand.

Suppose you read in the paper that the Federal Reserve plans to expand the money supply.The Fed is most likely to do this by

The least liquid asset on this list is

Which of the following is not part of M1?

Compared with money,bonds have

M1 does not include

We shouldn't be concerned about U.S.currency held abroad because

Money demand is given by Md/P = 1000 + .2Y - 1000i. Given that P = 200,Y = 2000,and i = .10,real money demand is equal to

One of moneys primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

moneys primary role in the economy comes from the benefits of lowering transactions costs and allowing specialization.This function of money is called

Suppose a new law imposes a tax on all trades of bonds and stock.What is the likely effect on money demand?

The opportunity cost of holding currency decreases when

Suppose the real money demand function is Md/P = 2400 + 0.2 Y - 10,000 (r + ?e). Assume M = 5000,P = 2.0,and ?e = .03.If Y were to increase from 4000 to 5000,then the real interest rate would increase by how many percentage points?

M2 does not include

A one-year bond has an interest rate of 5% today.Investors expect that in one year,a one year bond will have an interest rate equal to 7%.According to the expectations theory of the term structure of interest rates,in equilibrium,a two-year bond today will have an interest rate equal to

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters