Professional Documents
Culture Documents
When
. pays you B
. charges C
. pays you D
. pays you an interest rate because the deposit is an asset to the bank. Answer
:C
When you
borrow $2,000 from a bank, you ________ an interest rate because the loan is ________. A
. pay; a B
liability to you
. pay; an C
asset to you
. pay; a
:A
Your
. earn. B
. earn per D
hour.
. leave
:D
Sally's $2,000 a month. She deposits $500 in a saving account, buys $200 worth of income government securities, and leaves the rest for daily transactions. Sally's money is demand is A
. $2,000. B
. $1,300. C
. $700. D
. $1,500. Answer
:B
Mary is the 1st of every month and her rent is due on the 15th of every month. This is an paid on example of the A
. cash flow B
problem.
. financial C
float.
. money D
management problem.
:D
The balance in Derek's bank account is $750. Derek spends the same amount of money average each day during the month and at the end of the month his account balance is $0. monthly Derek's monthly starting balance is A
. $750. B
. $1500. C
. $1,000. D
. $16.67. Answer
:B
The balance in Bill's bank account is $1,000. Bill spends the same amount of money average each day during the month, and at the end of the month his account balance is $0. monthly Bill's monthly starting balance is A
. $3,000. B
. $1,500. C
. $2,000. D
. $30. Answer
:C
The balance in Derek's bank account is $300. Derek spends the same amount of money average each day during a 30-day month, and at the end of the month his account balance monthly is $0. Derek spends his money at a constant rate of ________ per day. A
. $20 B
. $30 C
. $50 D
. $75 Answer
:A
The balance in Bill's bank account is $900. Bill spends the same amount of money each average day during a 30-day month, and at the end of the month his account balance is $0. monthly Bill spends his money at a constant rate of ________ per day. A
. $75 B
. $100 C
. $30 D
. $90 Answer
:C
Ed spends $100 per day. Initially, Ed keeps all of his income in a non interestbearing checking account. Ed decided to change his strategy and at the beginning of each month he deposits one-third of his income into his checking account and buys two bonds with the remainder of his income. After 10 days he cashes in one bond and after 10 days after that he cashes in the other bond. Which of the following statements is TRUE? A
. If Ed uses B
. The second involves lower money management costs because Ed now earns interest on strategy the bonds he has purchased. C
. Ed's D
. If the paid on bonds decreases, the opportunity cost of Ed's original strategy is interest rate reduced. Answer
:D
An
. have no B
. increase C
. lower the D
. either decrease the optimal money balance depending on the level of current increase or household wealth. Answer
:C
John's
optimal money balance has increased. This could have been caused by A
:D
Lisa's
optimal monetary balance has decreased. This could have been caused by A
:C
. the rate at which current consumption can be exchanged for future consumption. D
. the
:D
The
interest rate paid on bonds increases from 4% to 7%. This will cause A
. no change in the optimal balance because checking deposits don't earn interest. B
. the optimal balance to increase because it raises the opportunity costs of holding money. C
. the optimal balance to decrease because it raises the opportunity cost of holding money. D
. the optimal balance to increase because it reduces the opportunity cost of holding money. Answer
:C
The
. positively B
related.
. negatively related. C
. sometimes related and other times negatively related, depending on the bond payments. positively D
:B
Jimmy bond a year ago for $16,000. The interest rate has increased to 10%. Jimmy wants bought to sell the bond. To be able to sell the bond Jimmy must charge a price of no more a 5% than A
. $400. B
. $1,000. C
. $8,000. D
. $4,000. Answer
:C
Dirk bond a year ago for $30,000. The interest rate has decreased to 10%. Dirk wants to bought sell the bond. To be able to sell the bond Dirk must charge a price of no more than a 20% A
. $60,000. B
. $45,000. C
. $30,000. D
. $35,000. Answer
:A
Which
. The B
transaction motive
. The asset C
motive
. The D
speculative motive
:B
. positively B
related to income.
. positively C
:C
The
. positively B
. positively C
:A
As the rate falls, people hold ________ money instead of bonds because the opportunity interest cost of holding money has ________. A
. more; B
fallen
. less; fallen C
. less; risen D
:A
If
interest rates are lower than what individuals consider normal, they will A
. increase B
. increase C
. decrease D
:B
If
interest rates increase to a very high level, people will most likely hold A
. more B
. more
:A
Which
of the following will most likely cause a decrease in the quantity of money demand? A
. An increase in income D
:B
The
. income. B
. the price C
level.
:C
The
. aggregate income. B
. the price C
level.
. the dollar D
value of transactions.
:D
The
. increases B
. increases D
:C
The
. increases C
:D
When
. rise. B
. fall. C
. are D
:B
If the
interest rate is higher than normal, people are more likely to hold A
. bonds instead of
money because as the interest rate starts to rise, the value of the bonds will increase.
. bonds C
. money instead of
bonds because the brokerage fees and other costs of buying bonds are high when the interest rate is low.
. money bonds because there is a speculation motive for holding a larger amount of instead of money. Answer
:B
Refer to the information provided in Figure 11.1 below to answer the questions that follow.
Figure 11.1
. an increase in income. C
:C
. a decrease in income. B
:D
. a decrease in income. B
:D
Refer to 11.1. All of the following events can cause a movement from Point E to Point A Figure EXCEPT A
. an increase in income. B
:C
Refer to Figure The money demand curve will shift from 11.1. A
to
if
. the price B
level increases.
. income C
decreases.
. interest D
rates fall.
. interest
:B
. a decrease in income. D
:A Refer to the information provided in Figure 11.2 below to answer the questions that follow.
Figure 11.2
Refer to 11.2. Suppose money demand is currently at Point A. An increase money demand Figure could be caused by: A
. an increase in income. C
:B
Refer to 11.2. Suppose money demand is currently at Point A. A decrease in the interest Figure rate to 5%, ceteris paribus, will likely A
. decrease B
. increase C
. increase D
. increase the quantity of money demanded from $150 million to $300 million. Answer
:C
Refer to 11.2. Suppose the money demand is currently at Point D. A movement to point C Figure could be caused by A
:B
Refer to 11.2. Suppose that money demand is currently at Point B. A movement to Point D Figure could be caused by A
:D
Which
. An increase in income B
. A decrease in income C
:D
The motive shifts the money demand curve, and the ________ motive causes ________ movements along the same money demand curve. A
. B
speculative; transaction
. C
transaction; precautionary
. D
transaction; speculative
:C
Refer to the information provided in Table 11.1 below to answer the questions that follow. Table 11.1
Refer to 11.1. If it costs $11 each time a bond is sold, the optimal average money holdings Table are A
. $600. B
. $400. C
. $300. D
. $200. Answer
:D
Refer to 11.1. If it costs $7 each time a bond is sold, the optimal average money holdings Table are A
. $600. B
. $400. C
. $300. D
. $200. Answer
:B
Refer to 11.1. If the period covered by Table 11.1 is one year, the interest rate paid on Table bonds A
. is 2%. B
. is 3%. C
. is 5%. D
:C True/False 1)
A between the timing of money inflow to the household and the timing of money mismat outflow for household expenses is known as the nonsynchronization of income and ch spending. Answer:
True
F Diff: 2 a
Skill: D
Less hing from bonds to money means less interest switc revenue lost, but higher money management costs. A n s w e r :
True
F a
T
Diff: h nswer: A 2 Skill: C
True
F a
W
Diff: h nswer: A 2 Skill: F
True
F a
I
Diff: f nswer: A 1 Skill: F
True
F Id Diff: 2bond a n Skill: vs A ewhe sn t inter oest rrates sare low m with athe yhope of w selli i ng sthe h m whe tn ointer est h rates oincre l ase. Answer:
True
F a
A
Diff: Answer: 1 Skill: C
True
F A man Diff: 2d for a n Skill: F mon eey xdrive cs einter sest srates dow d n. e Answer:
True
F a
Diff: 1 Skill: F
11.2 The Equilibrium Interest Rate Multiple Choice Refer to the information provided in Figure 11.3 below to answer the questions that follow.
. .
Figure 11.3
:C
:B
Refer to Figure 11.3. An decrease in the GDP, ceteris paribus, will likely A
. increase B
. decrease C
. increase D
. decrease the equilibrium interest rate without changing equilibrium money holdings. Answer
:D
Refer to Figure 11.3. A increase in the price level, ceteris paribus, will likely A
. increase B
. decrease C
. increase D
. keep the equilibrium interest constant and increase equilibrium money holdings Answer
:C
Refer to Figure 11.3. An increase in the money supply, ceteris paribus, will likely A
. increase B
. increase C
. decrease D
. decrease the equilibrium interest rate without changing . equilibrium money holdings. Answer
:C
Refer to 11.3. An decrease in the money supply and an increase in the GDP will, for sure, Figure A
. increase B
. decrease C
. decrease D
:A
Refer to the information provided in Figure 11.4 below to answer the questions that follow.
Figure 11.4
:C
:D
Refer to Figure 11.4. The money market will be in equilibrium at an interest rate of A
. 0%. B
. 6%. C
. 4%. D
. 2%. Answer
:C
. will B
. are C
. will D
attempt to increase both their holdings of money and their holdings of bonds.
. will
:D
. are B
. will C
. will D
attempt to increase both their holdings of money and their holdings of bonds.
. will
:B
. are B
. will C
. will D
. will
attempt to increase both their holdings of money and their holdings of bonds. Answer
:A
What will
happen to the equilibrium interest rate when both money supply and GDP decrease? A
. The B
. The C
. The D
:D
If the of money demanded is greater than the quantity of money supplied, then the quantity interest rate will A
. change in B
an uncertain direction.
. rise. C
. remain D
constant.
. fall. Answer
:B
:C
:A Refer to the information provided in Figure 11.5 below to answer the questions that follow.
Figure 11.5
Refer to Figure the interest rate equals 4% and the money supply decreases from 11.5. Assume the interest rate remains at 4% A
to
. If
. money B
. money C
. there will D
:C
Refer to Figure
to
. money B
. the money return to equilibrium only if the money supply is decreased to its original level. market will Answer
:C
Refer to Figure
to
if
. the Fed B
. the Fed C
. the D
. the Fed
:D
Refer to Figure
to
if
. the Fed B
. the Fed C
. the D
. the Fed
:A
Refer to Figure
to
. money B
. the money return to equilibrium only if the money supply is increased to its original level. market will Answer
:B
Refer to Figure
to
, if
. the Fed B
. the price C
level increases.
. the D
. the Fed
:D
Refer to Figure
to
, if
. the Fed B
. the price C
level increases.
. the D
. the Fed
:A
:D
. a decrease in GDP. D
:D
When sells government securities, ceteris paribus, the money supply shifts to the ________ the Fed and the equilibrium interest rate ________. A
. left; rises B
. right; rises C
. right; falls D
:A
Decreas required reserve ratio shifts the money supply curve to the ________ and ________ ing the the equilibrium interest rate. A
. left; B
increases
. right; C
increases
. left; D
decreases
. right;
decreases Answer
:D
An e in the level of aggregate output and the sale of government securities by the Fed increas will have what effect on the equilibrium interest rate? A
. No effect B
. An
:C
Which of the
following pairs of events will definitely lead to an increase in the equilibrium interest rate? A
. The sale of securities by the Federal Reserve and an increase in the price level. government B
. A decrease in the discount rate and an increase in the level of aggregate output. C
. The government securities by the Federal Reserve and a decrease in the price purchase of level. D
. An increase in the required reserve ratio and a decrease in the level of aggregate output. Answer
:A
Which of the
following pairs of events will definitely lead to an decrease in the equilibrium interest rate? A
. The government securities by the Federal Reserve and a increase in the level of purchase of aggregate output. B
. A decrease in the required reserve ratio and a decrease in the level of aggregate output. D
. The sale of securities by the Federal Reserve and a decrease in the price level. government Answer
:C
An e in the discount rate and an decrease in the level of aggregate output will have increas what effect on the equilibrium interest rate? A
. No effect D
. An
:D Refer to the information provided in Figure 11.6 below to answer the questions that follow.
Figure 11.6
Refer to Figure
to
if
. the Fed B
. the price C
level decreases.
. the
:D
Refer to Figure 11.6. If the demand for money curve shifts from will A
to
. increase B
from 5% to 7%.
. increase C
from 5% to 10%.
. decrease D
from 7% to 5%.
:A
Refer to Figure 11.6. If the demand for money curve shifts from at 5%, there will be A
to
. an D
. an
:A
Which
. A sale of D
:C
Which
. A sale of C
:D
Refer to the information provided in Figure 11.7 below to answer the questions that follow.
Figure 11.7
Refer to Figure
to
if
. the Fed B
. the price C
level decreases.
:D
Refer to Figure 11.7. If the demand for money curve shifts from will A
to
. decrease B
from 7% to 5%.
. increase C
from 5% to 7%.
. increase D
from 5% to 6%.
:C
Refer to Figure 11.7. If the demand for money curve shifts from at 5%, there will be A
to
. an D
. an
:A
A e in aggregate output, ceteris paribus, will cause the demand for money to ________ decreas and the interest rate to ________. A
. increase; B
increase
. increase; C
decrease
. decrease; decrease D
:C
An e in the price level, ceteris paribus, will cause the demand for money to ________ increas and the interest rate to ________. A
. increase; B
increase
. increase; C
decrease
. decrease; decrease D
:A
As the
. the D
. the
:D
Which
of the following events will lead to a decrease in the equilibrium interest rate? A
:B
Which
of the following events will lead to an increase in the equilibrium interest rate? A
:C
True/False 1)
If the
Federal Reserve wants interest rates to decrease, it will buy bonds. Answer:
True
F A ecuri Diff: 1ties a Skill: sby F athe l Fede eral Rese orve f will put g upw oard vpres esure ron n the m equil eibriu n m t inter est srate. Answer:
True
F Ty Diff: 1supp a o Skill: F ly i and n decr cease rinter eest arates s, the eFed coul td h sell egove rnm m ent osecu n rities e. Answer:
True
F a
I
Diff: f nswer: A 1 Skill: A
True
F a
I
Diff: f nswer: A 2 Skill: A
True
F I erve Diff: 2raise a f Skill: C the s t requi h red ereser ve Fratio e, d then ethe rmon aey l supp ly R will erise. s Answer:
True
F a
I .
Diff: n 2 Skill: C
. tighten C
monetary policy.
. decrease D
. ease
:B
In a
. tighten B
monetary policy.
. ease C
monetary policy.
. tighten
:B
When ists refer to "tight" monetary policy, they mean that the Federal Reserve is taking econom actions that will A
. increase B
. decrease C
:D
An
. the Fed C
:B
An
. the Fed C
:A
When ists refer to "easy" monetary policy, they mean that the Federal Reserve is taking econom actions that will A
. increase B
. decrease C
:C
Which
:B True/False 1)
If the
Federal Reserve lowers the discount rate it is easing monetary policy. Answer:
True
F I erve Diff: 1raise a f Skill: F s t reser h ve erequi rem Fents eit is d tight eenin rg amon l etar y R polic ey. s Answer:
True
F Tetar Diff: 1y a i Skill: g F polic h y t stim ulate m the s oecon n omy. Answer:
True
F a
M
Diff: o nswer: A 1 Skill: A
True
F a
W
Diff: h nswer: A 2 Skill: A
True
F Tury Diff: 2bill a h Skill: e A rate is 1 t the 1 rinter . eest 4 arate spaid A p p e n d i x A M u l t i p l e C h o i c e
. on C
. on D
. on
:A
The rate that commercial banks charge each other for borrowing and lending reserves interest is called A
. the B
commercial rate.
. the price C
interest rate.
. the
:C
Which
. The D
discount rate
. The
:B
On an
unsecured loan, your bank will highly likely charge an interest rate A
. below the B
prime rate.
:B
Assume interest rate on a bond is 5% and the expected one-year rate a year from now is the one- 7%. According to the expectations theory of the term structure of interest rates, the year two-year rate will be A
. 5%. B
. 6%. C
. 7%. D
. 12%. Answer
:B
Assume one-year interest rate on a bond is 7%, and the one-year expected rate a year from the now is 9%. According to the expectations theory of the term structure of interest current rates, the two-year interest rate is A
. 7%. B
. 16%. C
. 9%. D
. 8%. Answer
:D
The
. half the B
. twice the C
. an average of the current one-year rate and the expected one-year rate for next year. D
. the sum of the current one-year rate and the expected one-year rate for next year. Answer
:C
. affecting C
. A and B. Answer
:D
Govern ment securities that mature in less than a year are called A
. Federal B
funds bonds.
. C
government bonds.
. Federal D
Reserve bonds.
:D
. The D
. The
:B
Govern ment securities with terms of more than one year are called A
. Treasury B
bills.
. federal C
funds bonds.
. capital D
bills.
:D
The rate that banks are charged when they borrow reserves from other banks is the interest A
. federal B
funds rate.
. AAA C
:A
The
. one-month rate. B
. one-week C
rate.
. one-day D
rate.
:C
. interbank B
loans.
. raised by C
taxes.
. bonds
:A
The
rate that the Fed controls most closely through its open-market operations is the A
. prime rate. B
. federal C
funds rate.
:B
The
rate that the least risky firms pay on bonds that they issue is the A
. prime rate. B
. triple-A C
. federal
:B
True/False 1)
True
F a
C
Diff: o nswer: A 1 Skill: F
True
F Test Diff: 1rate a h Skill: e an F is aver t age w of othe expe ycted einter aest rrate each i of n the t two eyear rs. Answer:
True
F T follo Diff: 1wed a h Skill: e A watc hed m short oterm sinter t est rate w is i the d prim ee l rate. y Answer:
True
F a
T
Diff: h nswer: A 2 Skill: F
True
F Diff: 2 a
Skill: F