Question 1

A decrease in income will tend to cause which of the following?

Accepted Answer

A)  A decrease in the monetary base. 
B)  An increase in the interest rate. 
C)  A decrease in the interest rate. 
D)  An increase in central bank money. 
E)  An increase in the monetary base. 
A)  A decrease in the monetary base. 
B)  An increase in the interest rate. 
C)  A decrease in the interest rate. 
D)  An increase in central bank money. 
E)  An increase in the monetary base. C

Question 2

Explain what effect changes in each of the following variables has on the demand for central bank money: (1) the interest rate, i; and (b) real income, Y.

Accepted Answer

(1) The interest rate: A decrease in the interest rate causes an increase in money demand (movement along the demand curve). This leads to an increase in the demand for currency that causes an increase in the demand for central bank money. The increase in the demand for money also causes an increase in the demand for deposits and, therefore, an increase in banks' demand for reserves. This also causes an increase in the demand for central bank money. In this case, we only move along the demand curve.
(2) The level of income: An increase in Y causes an increase in money demand and, as described above, an indirect increase in the demand for currency and reserves. So, this increase in Y causes an increase in the demand for central bank money and a rightward shift in the curve.

Question 3

Which of the following is not a characteristic of bonds?

Accepted Answer

A)  They cannot be used for transactions. 
B)  They are sold for a price that varies inversely with the interest rate. 
C)  They pay a positive interest. 
D)  They pay a negative interest. 
E)  They pay zero interest. 
A)  They cannot be used for transactions. 
B)  They are sold for a price that varies inversely with the interest rate. 
C)  They pay a positive interest. 
D)  They pay a negative interest. 
E)  They pay zero interest. E

Question 4

What is the money multiplier and what factors determine its size?

Accepted Answer

The money multiplier represents the effe

Question 5

We would expect which of the following to occur when the central bank conducts an open market purchase of bonds?

Accepted Answer

A)  An increase in the money multiplier. 
B)  An increase in reserves. 
C)  A decrease in central bank money. 
D)  A decrease in reserves. 
E)  A decrease in the money multiplier. 
A)  An increase in the money multiplier. 
B)  An increase in reserves. 
C)  A decrease in central bank money. 
D)  A decrease in reserves. 
E)  A decrease in the money multiplier.

Question 6

The cash rate is determined in which of the following markets?

Accepted Answer

A)  The money market. 
B)  The wholesale funds market. 
C)  The bond market. 
D)  The market for central bank money. 
E)  The market for reserves. 
A)  The money market. 
B)  The wholesale funds market. 
C)  The bond market. 
D)  The market for central bank money. 
E)  The market for reserves.

Question 7

A decrease in the interest rate will cause:

Accepted Answer

A)  an increase in the demand for money. 
B)  an increase in the demand for monetary base. 
C)  an increase in the supply of central bank money. 
D)  both A and C. 
E)  both B and C. 
A)  an increase in the demand for money. 
B)  an increase in the demand for monetary base. 
C)  an increase in the supply of central bank money. 
D)  both A and C. 
E)  both B and C.

Question 8

Suppose a one- year discount bond offers to pay $1250 in one year and currently sells for $1150. Given this information, we know that the interest rate on the bond is:

Accepted Answer

A)  12.7%. 
B)  8.7%. 
C)  9.7%. 
D)  15.7%. 
E)  6.7%. 
A)  12.7%. 
B)  8.7%. 
C)  9.7%. 
D)  15.7%. 
E)  6.7%.

Question 9

Suppose a one- year discount bond offers to pay $1250 in one year and currently has an 18% interest rate. Given the information, we know that the bond's price must be:

Accepted Answer

A)  $759. 
B)  $1159. 
C)  $1059. 
D)  $859. 
E)  $959. 
A)  $759. 
B)  $1159. 
C)  $1059. 
D)  $859. 
E)  $959.

Question 10

Explain the policies a central bank can implement to decrease the interest rate.

Accepted Answer

Central banks have two options to decrea

Question 11

If individuals do not hold current account deposits, we know that:

Accepted Answer

A)  The money multiplier is 1/c. 
B)  c = 1. 
C)  M = CUd. 
D)  H = CUd. 
E)  All of the above. 
A)  The money multiplier is 1/c. 
B)  c = 1. 
C)  M = CUd. 
D)  H = CUd. 
E)  All of the above.

Question 12

An increase in the parameter, c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?

Accepted Answer

A)  A decrease in the monetary base. 
B)  An increase in reserves. 
C)  A decrease in the money multiplier. 
D)  An increase in the monetary base. 
E)  An increase in the money multiplier. 
A)  A decrease in the monetary base. 
B)  An increase in reserves. 
C)  A decrease in the money multiplier. 
D)  An increase in the monetary base. 
E)  An increase in the money multiplier.

Question 13

Which of the following is not a component of money?

Accepted Answer

A)  Current account deposits. 
B)  Bonds held by the non- bank public. 
C)  Coins and bills held by the non- bank public. 
D)  Coins and bills held by banks. 
E)  None of the above. 
A)  Current account deposits. 
B)  Bonds held by the non- bank public. 
C)  Coins and bills held by the non- bank public. 
D)  Coins and bills held by banks. 
E)  None of the above.

Question 14

Which of the following will occur when the central bank pursues expansionary monetary policy?

Accepted Answer

A)  A rightward shift in the money demand curve and a leftward shift in the money supply curve. 
B)  A rightward shift in the money demand curve and a rightward shift in the money supply curve. 
C)  A leftward shift in the money demand curve and a rightward shift in the money supply curve. 
D)  A leftward shift in the money demand curve and a leftward shift in the money supply curve. 
E)  None of the above. 
A)  A rightward shift in the money demand curve and a leftward shift in the money supply curve. 
B)  A rightward shift in the money demand curve and a rightward shift in the money supply curve. 
C)  A leftward shift in the money demand curve and a rightward shift in the money supply curve. 
D)  A leftward shift in the money demand curve and a leftward shift in the money supply curve. 
E)  None of the above.

Question 15

Which of the following is not included as a component of the M1 definition of money?

Accepted Answer

A)  Coins and bills held by banks. 
B)  Bonds. 
C)  Coins and bills held by the non- bank public. 
D)  Current account deposits. 
E)  None of the above. 
A)  Coins and bills held by banks. 
B)  Bonds. 
C)  Coins and bills held by the non- bank public. 
D)  Current account deposits. 
E)  None of the above.

Question 16

A decrease in the reserve ratio, 8, will cause:

Accepted Answer

A)  An increase in the monetary base. 
B)  An increase in the money multiplier. 
C)  A decrease in reserves. 
D)  A decrease in the money multiplier. 
E)  A decrease in the monetary base. 
A)  An increase in the monetary base. 
B)  An increase in the money multiplier. 
C)  A decrease in reserves. 
D)  A decrease in the money multiplier. 
E)  A decrease in the monetary base.

Question 17

Which of the following generally occurs when a central bank pursues expansionary monetary policy?

Accepted Answer

A)  The central bank purchases bonds and the interest rate decreases. 
B)  The central bank sells bonds and the interest rate increases. 
C)  The central bank purchases bonds and the interest rate increases. 
D)  The central bank sells bonds and the interest rate decreases. 
E)  The central bank purchases reserves and the interest rate decreases. 
A)  The central bank purchases bonds and the interest rate decreases. 
B)  The central bank sells bonds and the interest rate increases. 
C)  The central bank purchases bonds and the interest rate increases. 
D)  The central bank sells bonds and the interest rate decreases. 
E)  The central bank purchases reserves and the interest rate decreases.

Question 18

Which of the following is a stock variable?

Accepted Answer

A)  Money. 
B)  Saving. 
C)  Income. 
D)  Both A and B. 
E)  Both B and C. 
A)  Money. 
B)  Saving. 
C)  Income. 
D)  Both A and B. 
E)  Both B and C.

Question 19

Which of the following events will most likely cause an increase in the money supply?

Accepted Answer

A)  An increase in the ratio of reserves to deposits. 
B)  A central bank sale of bonds. 
C)  A shift in public preferences away from deposits toward currency. 
D)  A decrease in the ratio of reserves to deposits. 
E)  None of the above. 
A)  An increase in the ratio of reserves to deposits. 
B)  A central bank sale of bonds. 
C)  A shift in public preferences away from deposits toward currency. 
D)  A decrease in the ratio of reserves to deposits. 
E)  None of the above.

Question 20

At the current interest rate, suppose the supply of money is greater than the demand for money. Given this information, we know that:

Accepted Answer

A)  the supply of bonds equals the demand for bonds. 
B)  the goods market is in equilibrium. 
C)  the price of bonds will tend to increase. 
D)  the price of bonds will tend to decrease. 
E)  production equals demand. 
A)  the supply of bonds equals the demand for bonds. 
B)  the goods market is in equilibrium. 
C)  the price of bonds will tend to increase. 
D)  the price of bonds will tend to decrease. 
E)  production equals demand.

Exam 4: Financial Markets

A decrease in income will tend to cause which of the following?

Explain what effect changes in each of the following variables has on the demand for central bank money: (1) the interest rate, i; and (b) real income, Y.

Which of the following is not a characteristic of bonds?

What is the money multiplier and what factors determine its size?

We would expect which of the following to occur when the central bank conducts an open market purchase of bonds?

The cash rate is determined in which of the following markets?

A decrease in the interest rate will cause:

Suppose a one- year discount bond offers to pay $1250 in one year and currently sells for $1150. Given this information, we know that the interest rate on the bond is:

Suppose a one- year discount bond offers to pay $1250 in one year and currently has an 18% interest rate. Given the information, we know that the bond's price must be:

Explain the policies a central bank can implement to decrease the interest rate.

If individuals do not hold current account deposits, we know that:

An increase in the parameter, c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?

Which of the following is not a component of money?

Which of the following will occur when the central bank pursues expansionary monetary policy?

Which of the following is not included as a component of the M1 definition of money?

A decrease in the reserve ratio, 8, will cause:

Which of the following generally occurs when a central bank pursues expansionary monetary policy?

Which of the following is a stock variable?

Which of the following events will most likely cause an increase in the money supply?

At the current interest rate, suppose the supply of money is greater than the demand for money. Given this information, we know that:

A Tour of the World

A Tour of the Book

The Goods Market

Goods and Financial Markets: the Islm Model

The Labour Market

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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