Assignment 18

A decrease in the demand for money would result from: A. a decrease in real GDP. B. an increase in income. C. an increase in nominal GDP. D. an increase in the price level.

A. a decrease in real GDP.

Assume the money market is in equilibrium. The Federal Reserve Bank has decided to purchase Treasury bills in an open market operation. The result of this action will be a(n) _____ in the interest rate as the money _____ shifts _____. A. decrease; supply; outward B. increase; demand; outward C. decrease; demand; inward D. decrease; supply; inward

A. decrease; supply; outward

Other things equal, an increase in the interest rate leads to a: A. fall in investment and consumer spending. B. fall in investment spending and a rise in consumer spending. C. rise in investment and consumer spending. D. fall in consumer spending and a rise in investment spending.

A. fall in investment and consumer spending.

Expansionary monetary policy: A. increases the money supply, decreases interest rates, and increases consumption and investment. B. decreases the money supply, increases interest rates, and decreases consumption and investment. C. decreases the money supply, interest rates, consumption, and investment. D. increases the money supply, interest rates, consumption, and investment.

A. increases the money supply, decreases interest rates, and increases consumption and investment.

(Figure: Money Market I) If the money market is initially in equilibrium at point E and the central bank sells bonds, then the interest rate will: A. move toward point H. B. shift rightward. C. remain at point E. D. move toward point L.

A. move toward point H.

An increase in the demand for money, with no change in the supply of money, will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium interest rate. A. no change; an increase B. a decrease; an increase C. an increase; a decrease D. no change; a decrease

A. no change; an increase

Which of the following statements is true? A. The money supply curve is a horizontal line. B. An increase in the money supply lowers the equilibrium rate of interest. C. A decrease in the money supply lowers the equilibrium rate of interest. D. The demand for money curve is a vertical line

B. An increase in the money supply lowers the equilibrium rate of interest.

When the Fed buys Treasury bills, this leads to: A. an increase in the Fed funds rate. B. an increase in the money supply. C. an increase in short-term interest rates. D. a decrease in the money supply.

B. an increase in the money supply.

If the Fed wants to decrease interest rates, it can: A. decrease the money supply by selling Treasury bills. B. increase the money supply by buying Treasury bills. C. increase the money supply by selling Treasury bills. D. decrease the money supply by buying Treasury bills.

B. increase the money supply by buying Treasury bills.

An increase in the aggregate price level: A. decreases the demand for money. B. increases the demand for money. C. shifts the demand for money to the left. D. does not affect the demand for money.

B. increases the demand for money.

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect: A. a downward movement along a fixed money demand curve. B. the money demand curve to shift inward. C. an upward movement along a fixed money demand curve. D. the money demand curve to shift outward

B. the money demand curve to shift inward.

Treasury bills: A. usually pay higher interest rates than other short-term assets because they are scarce compared to all other assets. B. usually pay lower interest rates than other short-term assets because they are less risky than other assets. C. usually pay higher interest rates than other short-term assets because they are riskier than other assets. D. usually pay lower interest rates than other short-term assets because they are scarce compared to all other assets.

B. usually pay lower interest rates than other short-term assets because they are less risky than other assets.

An increase in the supply of money, with no change in demand for money, will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium interest rate. A. a decrease; an increase B. a decrease; a decrease C. an increase; a decrease D. an increase; an increase

C. an increase; a decrease

The Federal Reserve's Open Market Committee has decided that the federal funds rate should be .5% rather than the current rate of 1.25%. The appropriate open market action is to _____ Treasury bills to _____ the money _____ curve. A. buy; decrease; demand B. sell; decrease; demand C. buy; increase; supply D. buy; decrease; supply

C. buy; increase; supply

A sale of bonds by the Fed: A. lowers interest rates and increases the money supply. B. raises interest rates and increases the money supply. C. raises interest rates and reduces the money supply. D. lowers interest rates and reduces the money supply.

C. raises interest rates and reduces the money supply.

If the target rate of interest is higher than the current equilibrium interest rate, the Fed will: A. buy treasury bills in the open market, decrease the supply of money, and increase the interest rate back to the target rate. B. buy treasury bills in the open market, increase the supply of money, and lower the interest rate back to the target rate. C. sell treasury bills in the open market, decrease the supply of money, and increase the interest rate back to the target rate. D. sell treasury bills in the open market, increase the supply of money, and lower the interest rate back to the target rate.

C. sell treasury bills in the open market, decrease the supply of money, and increase the interest rate back to the target rate.

The money demand curve is: A. downward-sloping because the opportunity cost of holding money is inversely related to the interest rate. B. downward-sloping because the opportunity cost of holding money rises as the interest rate falls. C. upward-sloping because the opportunity cost of holding money rises with the interest rate. D. downward-sloping because the opportunity cost of holding money rises as the interest rate increases.

D. downward-sloping because the opportunity cost of holding money rises as the interest rate increases.

If the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity demanded of money will ______. A. decrease; increase B. decrease; decrease C. increase; increase D. increase; decrease

D. increase; decrease

The money demand curve shows the relationship between the: A. real GDP and the nominal quantity of money demanded. B. aggregate price level and the nominal quantity of money demanded. C. the money supply and the quantity of money demanded. D. interest rate and the nominal quantity of money demanded.

D. interest rate and the nominal quantity of money demanded.

If the equilibrium interest rate in the money market is 5%, at an interest rate of 2%: A. money demanded is less than money supplied. B. money demanded is equal to money supplied. C. it is impossible to predict which is greater, money demanded or money supplied. D. money demanded is greater than money supplied.

D. money demanded is greater than money supplied.