Question 1

The "precautionary demand" for money arises from the

Accepted Answer

A) fear that interest rates will fall. 
B) fear that interest rates will rise. 
C) need to make predictable purchases of goods and services. 
D) uncertainty about when some expenditures will be necessary. 
E) desire to avoid paying interest on credit purchases. 
A) fear that interest rates will fall. 
B) fear that interest rates will rise. 
C) need to make predictable purchases of goods and services. 
D) uncertainty about when some expenditures will be necessary. 
E) desire to avoid paying interest on credit purchases. D

Question 2

FIGURE 27-2 Refer to Figure 27-2.Starting at equilibrium E0,an increase in real GDP will lead to a

Accepted Answer

A) shift of the MS curve to the left and an increase in the interest rate. 
B) shift of the MS curve to the right and a fall in the interest rate. 
C) downward movement along the MD curve and a lower interest rate. 
D) shift of the MD curve to the left and a fall in the interest rate. 
E) shift of the MD curve to the right and an increase in the interest rate. 
A) shift of the MS curve to the left and an increase in the interest rate. 
B) shift of the MS curve to the right and a fall in the interest rate. 
C) downward movement along the MD curve and a lower interest rate. 
D) shift of the MD curve to the left and a fall in the interest rate. 
E) shift of the MD curve to the right and an increase in the interest rate. E

Question 3

Consider the strength of monetary forces.The effectiveness of monetary policy in bringing about changes in real GDP is enhanced when the

Accepted Answer

A) investment demand curve and money demand function are both relatively flat. 
B) investment demand curve and money demand function are both relatively steep. 
C) investment demand curve is relatively steep and the money demand function is relatively flat. 
D) investment demand curve is relatively flat and the money demand function is relatively steep. 
E) None of the above-monetary policy is always equally effective. 
A) investment demand curve and money demand function are both relatively flat. 
B) investment demand curve and money demand function are both relatively steep. 
C) investment demand curve is relatively steep and the money demand function is relatively flat. 
D) investment demand curve is relatively flat and the money demand function is relatively steep. 
E) None of the above-monetary policy is always equally effective. D

Question 4

Consider the strength of monetary forces.Monetary policy can have the largest impact on desired aggregate expenditures when the

Accepted Answer

A) investment demand curve and money demand function are both relatively flat. 
B) investment demand curve and money demand function are both relatively steep. 
C) investment demand curve is relatively steep and the money demand function is relatively flat. 
D) investment demand curve is relatively flat and the money demand function is relatively steep. 
E) None of the above-monetary policy is always equally effective. 
A) investment demand curve and money demand function are both relatively flat. 
B) investment demand curve and money demand function are both relatively steep. 
C) investment demand curve is relatively steep and the money demand function is relatively flat. 
D) investment demand curve is relatively flat and the money demand function is relatively steep. 
E) None of the above-monetary policy is always equally effective.

Question 5

Consider the demand for money.If real GDP falls,other things being equal,we can expect

Accepted Answer

A) an increase in the speculative demand for money. 
B) an increase in the total demand for money. 
C) a decrease in transactions demand for money. 
D) an increase in transactions demand for money. 
E) an increase in precautionary demand for money. 
A) an increase in the speculative demand for money. 
B) an increase in the total demand for money. 
C) a decrease in transactions demand for money. 
D) an increase in transactions demand for money. 
E) an increase in precautionary demand for money.

Question 6

In order to calculate the present value of the sum of future payments due from a bond,we use the interest rate to ________ those future payments.

Accepted Answer

A) adjust 
B) correct 
C) discount 
D) inflate 
E) maximize 
A) adjust 
B) correct 
C) discount 
D) inflate 
E) maximize

Question 7

Consider two bonds,Bond A and Bond B,offered for sale in the same market for financial assets: - Bond A has a face value of $1000,a market price of $971,and matures in one year.
- Bond B has a face value of $1000,a market price of $926,and matures in one year.
Which of the following statements about Bonds A and B are correct?

Accepted Answer

A) Bond A is perceived as a riskier asset than Bond B. 
B) Bond B is perceived as a riskier asset than Bond A. 
C) Bond B has a higher present value than Bond A. 
D) There is a disequilibrium in this market for financial assets. 
A) Bond A is perceived as a riskier asset than Bond B. 
B) Bond B is perceived as a riskier asset than Bond A. 
C) Bond B has a higher present value than Bond A. 
D) There is a disequilibrium in this market for financial assets.

Question 8

The linkage between changes in monetary equilibrium and changes in aggregate demand is called the

Accepted Answer

A) monetary transmission mechanism. 
B) simple multiplier. 
C) equilibrium mechanism. 
D) transactions mechanism. 
E) liquidity preference function. 
A) monetary transmission mechanism. 
B) simple multiplier. 
C) equilibrium mechanism. 
D) transactions mechanism. 
E) liquidity preference function.

Question 9

Suppose that at a given interest rate and money supply,all firms and households simultaneously try to reduce their money balances.They do this by trying to ________,which causes an excess ________,which causes a(n)________,and finally a(n)________ in the interest rate.

Accepted Answer

A) sell bonds; supply of bonds; increase in the price of bonds; decrease 
B) buy bonds; supply of bonds; decrease in the price of bonds; increase 
C) sell bonds; demand for bonds; increase in the price of bonds; decrease 
D) buy bonds; demand for bonds; increase in the price of bonds; decrease 
E) sell bonds; supply of bonds; decrease in the price of bonds; increase 
A) sell bonds; supply of bonds; increase in the price of bonds; decrease 
B) buy bonds; supply of bonds; decrease in the price of bonds; increase 
C) sell bonds; demand for bonds; increase in the price of bonds; decrease 
D) buy bonds; demand for bonds; increase in the price of bonds; decrease 
E) sell bonds; supply of bonds; decrease in the price of bonds; increase

Question 10

Which one of the following statements best describes the monetary transmission mechanism?

Accepted Answer

A) An increase in personal consumption leads to an upward shift in the AE curve and thereby increases real GDP. 
B) An increase in government spending causes the AE curve to shift upwards,leading to a higher GDP. 
C) A decrease in imports causes the AE curve to shift upwards,leading to a higher interest rate. 
D) An increase in the money supply leads to a lower interest rate,higher desired investment,an upward shift in the AE curve and a higher GDP. 
E) A decrease in the money supply leads to a lower interest rate,higher desired investment,an upward shift in the AE curve and a higher GDP. 
A) An increase in personal consumption leads to an upward shift in the AE curve and thereby increases real GDP. 
B) An increase in government spending causes the AE curve to shift upwards,leading to a higher GDP. 
C) A decrease in imports causes the AE curve to shift upwards,leading to a higher interest rate. 
D) An increase in the money supply leads to a lower interest rate,higher desired investment,an upward shift in the AE curve and a higher GDP. 
E) A decrease in the money supply leads to a lower interest rate,higher desired investment,an upward shift in the AE curve and a higher GDP.

Question 11

Suppose the market interest rate rises from 3% to 4%.This will lead to ________ in bond prices and ________ in bond yields.

Accepted Answer

A) a fall; a fall 
B) a fall; a rise 
C) a rise; a fall 
D) a rise; a rise 
E) no change; no change 
A) a fall; a fall 
B) a fall; a rise 
C) a rise; a fall 
D) a rise; a rise 
E) no change; no change

Question 12

Consider the monetary transmission mechanism.In an open economy,such as Canada's,an increase in the money supply leads to a fall in the interest rate.This is followed by

Accepted Answer

A) an outflow of financial capital and an appreciation of the Canadian dollar. 
B) an inflow of financial capital and a depreciation of the Canadian dollar. 
C) an outflow of financial capital and a depreciation of the Canadian dollar. 
D) an inflow of financial capital and an appreciation of the Canadian dollar. 
A) an outflow of financial capital and an appreciation of the Canadian dollar. 
B) an inflow of financial capital and a depreciation of the Canadian dollar. 
C) an outflow of financial capital and a depreciation of the Canadian dollar. 
D) an inflow of financial capital and an appreciation of the Canadian dollar.

Question 13

If Robert expects interest rates to fall in the near future,he will probably be willing to

Accepted Answer

A) buy bonds now,and hold less money. 
B) buy bonds now,but only if their price falls. 
C) sell bonds now,and hold less money. 
D) put his money under his mattress rather than buy bonds. 
E) maintain only the current holding of bonds. 
A) buy bonds now,and hold less money. 
B) buy bonds now,but only if their price falls. 
C) sell bonds now,and hold less money. 
D) put his money under his mattress rather than buy bonds. 
E) maintain only the current holding of bonds.

Question 14

Suppose the market interest rate falls from 3% to 2%.This will lead to ________ in bond prices and ________ in bond yields.

Accepted Answer

A) a fall; a fall 
B) a fall; a rise 
C) a rise; a fall 
D) a rise; a rise 
E) no change; no change 
A) a fall; a fall 
B) a fall; a rise 
C) a rise; a fall 
D) a rise; a rise 
E) no change; no change

Question 15

FIGURE 27-3 Refer to Figure 27-3.The increase in desired investment expenditure,as shown by the movement from point A to point B,occurs because of

Accepted Answer

A) a fiscal policy designed to encourage investment. 
B) an increase in the money supply. 
C) a change in sales,which increases inventory investment. 
D) an improvement in business confidence. 
E) a tax-rate induced change in desired investment. 
A) a fiscal policy designed to encourage investment. 
B) an increase in the money supply. 
C) a change in sales,which increases inventory investment. 
D) an improvement in business confidence. 
E) a tax-rate induced change in desired investment.

Question 16

The "transactions demand" for money arises from the fact that

Accepted Answer

A) there is uncertainty in the receipts of income. 
B) there is uncertainty about the movement of interest rates. 
C) households wish to have all their wealth in the form of money. 
D) households want to hold money in order to make purchases of goods and services. 
E) households want to keep cash on had to buy bonds if bond prices drop. 
A) there is uncertainty in the receipts of income. 
B) there is uncertainty about the movement of interest rates. 
C) households wish to have all their wealth in the form of money. 
D) households want to hold money in order to make purchases of goods and services. 
E) households want to keep cash on had to buy bonds if bond prices drop.

Question 17

If Janet expects interest rates to rise in the near future,she will probably be willing to

Accepted Answer

A) buy bonds now,and hold less money. 
B) buy bonds now,but only if their price falls. 
C) sell bonds now,and hold more money. 
D) put her money under her mattress rather than in a bank account. 
E) maintain only the current holding of bonds. 
A) buy bonds now,and hold less money. 
B) buy bonds now,but only if their price falls. 
C) sell bonds now,and hold more money. 
D) put her money under her mattress rather than in a bank account. 
E) maintain only the current holding of bonds.

Question 18

Consider the monetary transmission mechanism.A disturbance to monetary equilibrium which changes the interest rate will affect aggregate demand through

Accepted Answer

A) a shift of the investment demand function and a movement along the aggregate expenditure curve. 
B) a movement along the investment demand function and a shift of the aggregate expenditure curve. 
C) a shift of both the investment demand function and the aggregate expenditure curve. 
D) movements along the investment demand function and the aggregate expenditure curve. 
E) a movement along the aggregate expenditure curve. 
A) a shift of the investment demand function and a movement along the aggregate expenditure curve. 
B) a movement along the investment demand function and a shift of the aggregate expenditure curve. 
C) a shift of both the investment demand function and the aggregate expenditure curve. 
D) movements along the investment demand function and the aggregate expenditure curve. 
E) a movement along the aggregate expenditure curve.

Question 19

A firm that holds cash to avoid penalties associated with the late payment of bills is demonstrating which type of demand for money?

Accepted Answer

A) transactions demand 
B) precautionary demand 
C) speculative demand 
D) present value demand 
E) risk-return demand 
A) transactions demand 
B) precautionary demand 
C) speculative demand 
D) present value demand 
E) risk-return demand

Question 20

FIGURE 27-1 Refer to Figure 27-1.Given the money demand curve,MD,an increase in the quantity of money demanded from M1 to M0 can be caused by

Accepted Answer

A) an increase in the price level. 
B) a decrease in the price level. 
C) an increase in real GDP. 
D) an increase in the rate of interest. 
E) a decrease in the rate of interest. 
A) an increase in the price level. 
B) a decrease in the price level. 
C) an increase in real GDP. 
D) an increase in the rate of interest. 
E) a decrease in the rate of interest.

The "precautionary demand" for money arises from the

FIGURE 27-2 Refer to Figure 27-2.Starting at equilibrium E₀,an increase in real GDP will lead to a

Consider the strength of monetary forces.The effectiveness of monetary policy in bringing about changes in real GDP is enhanced when the

Consider the strength of monetary forces.Monetary policy can have the largest impact on desired aggregate expenditures when the

Consider the demand for money.If real GDP falls,other things being equal,we can expect

In order to calculate the present value of the sum of future payments due from a bond,we use the interest rate to ________ those future payments.

The linkage between changes in monetary equilibrium and changes in aggregate demand is called the

Suppose that at a given interest rate and money supply,all firms and households simultaneously try to reduce their money balances.They do this by trying to ,which causes an excess ,which causes a(n),and finally a(n) in the interest rate.

Which one of the following statements best describes the monetary transmission mechanism?

Suppose the market interest rate rises from 3% to 4%.This will lead to in bond prices and in bond yields.

Consider the monetary transmission mechanism.In an open economy,such as Canada's,an increase in the money supply leads to a fall in the interest rate.This is followed by

If Robert expects interest rates to fall in the near future,he will probably be willing to

Suppose the market interest rate falls from 3% to 2%.This will lead to in bond prices and in bond yields.

FIGURE 27-3 Refer to Figure 27-3.The increase in desired investment expenditure,as shown by the movement from point A to point B,occurs because of

The "transactions demand" for money arises from the fact that

If Janet expects interest rates to rise in the near future,she will probably be willing to

Consider the monetary transmission mechanism.A disturbance to monetary equilibrium which changes the interest rate will affect aggregate demand through

A firm that holds cash to avoid penalties associated with the late payment of bills is demonstrating which type of demand for money?

FIGURE 27-1 Refer to Figure 27-1.Given the money demand curve,M_D,an increase in the quantity of money demanded from M₁ to M₀ can be caused by

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Exam 27: Money, interest Rates, and Economic Activity

The "precautionary demand" for money arises from the

FIGURE 27-2 Refer to Figure 27-2.Starting at equilibrium E0,an increase in real GDP will lead to a

Consider the strength of monetary forces.The effectiveness of monetary policy in bringing about changes in real GDP is enhanced when the

Consider the strength of monetary forces.Monetary policy can have the largest impact on desired aggregate expenditures when the

Consider the demand for money.If real GDP falls,other things being equal,we can expect

In order to calculate the present value of the sum of future payments due from a bond,we use the interest rate to ________ those future payments.

The linkage between changes in monetary equilibrium and changes in aggregate demand is called the

Suppose that at a given interest rate and money supply,all firms and households simultaneously try to reduce their money balances.They do this by trying to ________,which causes an excess ________,which causes a(n)________,and finally a(n)________ in the interest rate.

Which one of the following statements best describes the monetary transmission mechanism?

Suppose the market interest rate rises from 3% to 4%.This will lead to ________ in bond prices and ________ in bond yields.

Consider the monetary transmission mechanism.In an open economy,such as Canada's,an increase in the money supply leads to a fall in the interest rate.This is followed by

If Robert expects interest rates to fall in the near future,he will probably be willing to

Suppose the market interest rate falls from 3% to 2%.This will lead to ________ in bond prices and ________ in bond yields.

FIGURE 27-3 Refer to Figure 27-3.The increase in desired investment expenditure,as shown by the movement from point A to point B,occurs because of

The "transactions demand" for money arises from the fact that

If Janet expects interest rates to rise in the near future,she will probably be willing to

Consider the monetary transmission mechanism.A disturbance to monetary equilibrium which changes the interest rate will affect aggregate demand through

A firm that holds cash to avoid penalties associated with the late payment of bills is demonstrating which type of demand for money?

FIGURE 27-1 Refer to Figure 27-1.Given the money demand curve,MD,an increase in the quantity of money demanded from M1 to M0 can be caused by

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

FIGURE 27-2 Refer to Figure 27-2.Starting at equilibrium E₀,an increase in real GDP will lead to a

Suppose that at a given interest rate and money supply,all firms and households simultaneously try to reduce their money balances.They do this by trying to ,which causes an excess ,which causes a(n),and finally a(n) in the interest rate.

Suppose the market interest rate rises from 3% to 4%.This will lead to in bond prices and in bond yields.

Suppose the market interest rate falls from 3% to 2%.This will lead to in bond prices and in bond yields.

FIGURE 27-1 Refer to Figure 27-1.Given the money demand curve,M_D,an increase in the quantity of money demanded from M₁ to M₀ can be caused by