Question 1

When the Fed sells government bonds in the open market, the money supply will increase.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following decreases the demand for money?

Accepted Answer

A) an increase in income 
B) an increase in real GDP 
C) a decrease in the price level 
D) expectations of higher bond prices 
A) an increase in income 
B) an increase in real GDP 
C) a decrease in the price level 
D) expectations of higher bond prices C

Question 3

A bond is

Accepted Answer

A) a debt instrument, that is, the issuer has taken out a loan. 
B) an equity instrument, that is, the buyer has purchased ownership in the issuer's firm. 
C) the same thing as a stock. 
D) a short-term loan from the government. 
A) a debt instrument, that is, the issuer has taken out a loan. 
B) an equity instrument, that is, the buyer has purchased ownership in the issuer's firm. 
C) the same thing as a stock. 
D) a short-term loan from the government. A

Question 4

Use the following to answer questions 
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments)
If the economy is at point c,

Accepted Answer

A) it is in a recessionary gap. 
B) it is at natural level of employment. 
C) the level of employment is greater than the natural level of employment. 
D) the unemployment rate is negative. 
A) it is in a recessionary gap. 
B) it is at natural level of employment. 
C) the level of employment is greater than the natural level of employment. 
D) the unemployment rate is negative.

Question 5

An increase in the supply of money will lead to a(n)

Accepted Answer

A) increase in equilibrium real GDP and an increase in equilibrium price level. 
B) increase in equilibrium real GDP and a decrease in equilibrium price level. 
C) decrease in equilibrium real GDP and an increase in equilibrium price level. 
D) decrease in equilibrium real GDP and a decrease in equilibrium price level. 
A) increase in equilibrium real GDP and an increase in equilibrium price level. 
B) increase in equilibrium real GDP and a decrease in equilibrium price level. 
C) decrease in equilibrium real GDP and an increase in equilibrium price level. 
D) decrease in equilibrium real GDP and a decrease in equilibrium price level.

Question 6

When the money demand curve is drawn with interest rate on the vertical axis and the quantity of money on the horizontal axis, the slope of the demand curve for money is

Accepted Answer

A) vertical. 
B) horizontal. 
C) positive. 
D) negative. 
A) vertical. 
B) horizontal. 
C) positive. 
D) negative.

Question 7

If financial investors believe that the prices of bonds and other assets will fall,

Accepted Answer

A) their precautionary demand for money goes up. 
B) their speculative demand for money goes up. 
C) their precautionary demand for money goes down. 
D) their speculative demand for money goes down. 
A) their precautionary demand for money goes up. 
B) their speculative demand for money goes up. 
C) their precautionary demand for money goes down. 
D) their speculative demand for money goes down.

Question 8

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

Accepted Answer

A) sell government bonds, which would decrease the money supply and increase interest rates.The results of such a policy are represented in Panel (b). 
B) buy government bonds, which would decrease the money supply and decrease interest rates.The results of such a policy are represented in Panel (a). 
C) buy government bonds, which would increase the money supply and decrease interest rates.The results of such a policy are represented in Panel (a). 
D) sell government bonds, which would increase the money supply and decrease interest rates.The results of such a policy are represented in Panel (a). 
A) sell government bonds, which would decrease the money supply and increase interest rates.The results of such a policy are represented in Panel (b). 
B) buy government bonds, which would decrease the money supply and decrease interest rates.The results of such a policy are represented in Panel (a). 
C) buy government bonds, which would increase the money supply and decrease interest rates.The results of such a policy are represented in Panel (a). 
D) sell government bonds, which would increase the money supply and decrease interest rates.The results of such a policy are represented in Panel (a).

Question 9

Suppose the United States experiences a rise in the U.S.dollar price of foreign exchange.

Accepted Answer

A) This means that the U.S.exchange rate has risen and the U.S.dollar buys more foreign currency. 
B) This means that the U.S.exchange rate has risen and the U.S.dollar buys less foreign currency. 
C) This means that the U.S.exchange rate has fallen and the U.S.dollar buys more foreign currency. 
D) This means that the U.S.exchange rate has fallen and the U.S.dollar buys less foreign currency. 
A) This means that the U.S.exchange rate has risen and the U.S.dollar buys more foreign currency. 
B) This means that the U.S.exchange rate has risen and the U.S.dollar buys less foreign currency. 
C) This means that the U.S.exchange rate has fallen and the U.S.dollar buys more foreign currency. 
D) This means that the U.S.exchange rate has fallen and the U.S.dollar buys less foreign currency.

Question 10

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 11

Use the following to answer questions 
Exhibit: The Bond Market  
-(Exhibit: The Bond Market)
A movement from S1 to S2, means there was

Accepted Answer

A) a decrease in borrowing. 
B) an increase in borrowing. 
C) a decrease in lending. 
D) a decrease in the interest rate. 
A) a decrease in borrowing. 
B) an increase in borrowing. 
C) a decrease in lending. 
D) a decrease in the interest rate.

Question 12

An increase in the demand for bonds generates

Accepted Answer

A) an increase in both the interest rate and the exchange rate. 
B) a decrease in both the interest rate and the exchange rate. 
C) an increase in the interest rate and a decrease in the exchange rate. 
D) a decrease in the interest rate and an increase in the exchange rate. 
A) an increase in both the interest rate and the exchange rate. 
B) a decrease in both the interest rate and the exchange rate. 
C) an increase in the interest rate and a decrease in the exchange rate. 
D) a decrease in the interest rate and an increase in the exchange rate.

Question 13

The demand for bonds curve slopes downwards because

Accepted Answer

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

Question 14

Suppose the government issues bonds to finance an increase in government spending.In the bond market,

Accepted Answer

A) the demand curve shifts right, leading to an increase in bond prices, and a decrease in interest rates. 
B) the supply curve shifts right, leading to a decrease in bond prices, and an increase in interest rates. 
C) the demand curve shifts left, leading to a decrease in bond prices, and an increase in interest rates. 
D) the supply curve shifts left, leading to an increase in bond prices, and an increase in interest rates. 
A) the demand curve shifts right, leading to an increase in bond prices, and a decrease in interest rates. 
B) the supply curve shifts right, leading to a decrease in bond prices, and an increase in interest rates. 
C) the demand curve shifts left, leading to a decrease in bond prices, and an increase in interest rates. 
D) the supply curve shifts left, leading to an increase in bond prices, and an increase in interest rates.

Question 15

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

Accepted Answer

A) speculative demand for money. 
B) transfer demand for money. 
C) precautionary demand for money. 
D) transactions demand for money. 
A) speculative demand for money. 
B) transfer demand for money. 
C) precautionary demand for money. 
D) transactions demand for money.

Question 16

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 17

An increase in interest rates is likely to cause

Accepted Answer

A) firms and households to increase the quantity of money demanded. 
B) firms and households to decrease the quantity of money demanded. 
C) the money demand curve to shift to the right. 
D) the money demand curve to shift to the left. 
A) firms and households to increase the quantity of money demanded. 
B) firms and households to decrease the quantity of money demanded. 
C) the money demand curve to shift to the right. 
D) the money demand curve to shift to the left.

Question 18

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 19

Use the following to answer questions 
Exhibit: Foreign Exchange Market  
-(Exhibit: Foreign Exchange Market)
Who generates a supply of dollars in the foreign exchange market?

Accepted Answer

A) U.S.residents who demand foreign goods, services, and assets. 
B) U.S.residents and firms who wish to sell domestic assets to foreigners. 
C) Foreign residents abroad who demand U.S.goods, services, and assets. 
D) Foreign banks and citizens who wish to increase their holdings of a reserve currency. 
A) U.S.residents who demand foreign goods, services, and assets. 
B) U.S.residents and firms who wish to sell domestic assets to foreigners. 
C) Foreign residents abroad who demand U.S.goods, services, and assets. 
D) Foreign banks and citizens who wish to increase their holdings of a reserve currency.

Question 20

The foreign exchange market

Accepted Answer

A) is a government-run market where foreign currencies are traded. 
B) is a bank-owned market through which people buy and sell currencies. 
C) refers to the entire array of institutions through which people buy and sell currencies. 
D) an open market run by the Federal Reserve through which banks buy and sell currencies. 
A) is a government-run market where foreign currencies are traded. 
B) is a bank-owned market through which people buy and sell currencies. 
C) refers to the entire array of institutions through which people buy and sell currencies. 
D) an open market run by the Federal Reserve through which banks buy and sell currencies.

When the Fed sells government bonds in the open market, the money supply will increase.

Which of the following decreases the demand for money?

A bond is

Use the following to answer questions Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point c,

An increase in the supply of money will lead to a(n)

When the money demand curve is drawn with interest rate on the vertical axis and the quantity of money on the horizontal axis, the slope of the demand curve for money is

If financial investors believe that the prices of bonds and other assets will fall,

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

Suppose the United States experiences a rise in the U.S.dollar price of foreign exchange.

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) A movement from S₁ to S₂, means there was

An increase in the demand for bonds generates

The demand for bonds curve slopes downwards because

Suppose the government issues bonds to finance an increase in government spending.In the bond market,

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

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

An increase in interest rates is likely to cause

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

Use the following to answer questions Exhibit: Foreign Exchange Market -(Exhibit: Foreign Exchange Market) Who generates a supply of dollars in the foreign exchange market?

The foreign exchange market

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

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

When the Fed sells government bonds in the open market, the money supply will increase.

Which of the following decreases the demand for money?

A bond is

Use the following to answer questions Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point c,

An increase in the supply of money will lead to a(n)

When the money demand curve is drawn with interest rate on the vertical axis and the quantity of money on the horizontal axis, the slope of the demand curve for money is

If financial investors believe that the prices of bonds and other assets will fall,

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

Suppose the United States experiences a rise in the U.S.dollar price of foreign exchange.

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) A movement from S1 to S2, means there was

An increase in the demand for bonds generates

The demand for bonds curve slopes downwards because

Suppose the government issues bonds to finance an increase in government spending.In the bond market,

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

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

An increase in interest rates is likely to cause

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

Use the following to answer questions Exhibit: Foreign Exchange Market -(Exhibit: Foreign Exchange Market) Who generates a supply of dollars in the foreign exchange market?

The foreign exchange market

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

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: The Bond Market -(Exhibit: The Bond Market) A movement from S₁ to S₂, means there was