Exam 10: Financial Markets and the Economy

Use the following to answer questions . Exhibit: A Shift in Money Supply -(Exhibit: A Shift in Money Supply) What happens in the bond market as a result of the shift in the money supply curve from S₁ to S₂?

The exchange rate increases when there is a decrease in the demand for bonds.

Holding $10 in your pocket to purchase a piping hot pizza illustrates the

Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If you deposit $1, 600 into your checking account on the first day, eleventh day, and twenty-first day of the month, then your average quantity of money demanded is

Use the following to answer questions. Exhibit: The Money Market -(Exhibit: The Money Market) If the interest rate is above the equilibrium rate, there will be

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate an inflationary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

The interest rate on a bond is

Use the following to answer questions . Exhibit: Foreign Exchange Market -(Exhibit: Foreign Exchange Market) The supply of dollars curve slopes upwards because

An increase in the money supply tends to reduce investment.

An increase in the money supply by the Federal Reserve is likely to increase I. net exports. II. the exchange rate. III. interest rates. IV. aggregate demand.

Which of the following statements is true?

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

A decrease in the supply of money will lead to a(n)

All else constant, an increase in the supply of

The demand curve for money shows the quantity of money demanded at each interest rate, all other things unchanged.

Use the following to answer questions . Exhibit: The Money Supply and Aggregate Demand -(Exhibit The Money Supply and Aggregate Demand) If the economy is experiencing a recessionary gap, the Fed would

What happens in the money market when there is an increase in the supply of money?

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Assume that the economy is at point b. A decrease in the money supply would cause

Use the following to answer questions . Exhibit: Changes in the Money Supply -(Exhibit: Changes in the Money Supply) The shift in the money supply curve from S₁ to S₂ is due to

Which of the following are reasons that caused the Fed to abandon its practice of setting money supply targets? I. expiration of the legislation requiring the Fed to do so II. banking deregulation in the 1980s allowing for MMDAs III. financial development of retail sweep programs