chapter 4 review
If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to A) sell securities on the open market B) increase bond prices C)increase income taxes D)decrease the discount rate E)decrease the required reserve ratio
A) sell securities on the open market
When a central bank conducts open-market bond sales, the money supply, interest rate, and aggregate demand will change in which of the following ways in the short run? A)Money Supply Interest Rate Aggregate Demand Decrease Increase Decrease B)Money Supply Interest Rate Aggregate Demand Decrease Decrease Increase C)Money Supply Interest Rate Aggregate Demand Decrease Increase Increase D)Money Supply Interest Rate Aggregate Demand Increase Decrease Increase E)Money Supply Interest Rate Aggregate Demand Increase Decrease Decrease
A)Money Supply Interest Rate Aggregate Demand Decrease Increase Decrease
A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run? A)Nominal Interest Rate Aggregate Demand Increase Decrease B)Nominal Interest Rate Aggregate Demand Increase Increase C)Nominal Interest Rate Aggregate Demand Increase Not change D)Nominal Interest Rate Aggregate Demand Decrease Decrease E)Nominal Interest Rate Aggregate Demand Decrease Increase
A)Nominal Interest Rate Aggregate Demand Increase Decrease
Assume that the government finances its spending by borrowing from the public. If the government increases deficit spending, the price of previously issued bonds and the real interest rate will change in which of the following ways? A)Price of Bonds Real Interest Rate Decrease Decrease B)Price of Bonds Real Interest Rate Decrease Increase C)Price of Bonds Real Interest Rate Increase Decrease D)Price of Bonds Real Interest Rate Increase No change E)Price of Bonds Real Interest Rate Increase Increase
B)Price of Bonds Real Interest Rate Decrease Increase
Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent, the real interest rate is A)0.5% B)2% C)5% D)10% E)15%
C)5%
An increase in the equilibrium nominal interest rate could be caused by which of the following changes? A)An increase in the monetary base B)An increase in the money supply C)An increase in real income D)A decrease in the amount of cash the public wants to hold E)A decrease in the price level
C)An increase in real income
Which of the following will lower the prices of a country's outstanding government bonds? A)An open-market purchase of government bonds by the country's central bank B)A decrease in the required reserve ratio for the country's commercial banks C)An outflow of financial capital to other countries D)A decrease in the country's government spending E)A decrease in inflationary expectations in the country
C)An outflow of financial capital to other countries
In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations? A)Bond Prices Interest Rates No change Increase B)Bond Prices Interest Rates Increase Increase C)Bond Prices Interest Rates Increase Decrease D)Bond Prices Interest Rates Decrease Increase E)Bond Prices Interest Rates Decrease Decrease
C)Bond Prices Interest Rates Increase Decrease
Which of the following is most likely to increase the real interest rate in Country Z ? A)Country Z's central bank purchases government securities from banks and citizens. B)Country Z reduces government expenditures. C)Country Z is viewed as having increased political and economic risk. D)Country Z's citizens increase their savings in anticipation of needed retirement income. E)Country Z introduces a tax on consumption goods.
C)Country Z is viewed as having increased political and economic risk.
Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer? A)It is the real interest rate divided by the price level. B)It is the real interest rate minus the expected inflation rate. C)It is the interest rate charged by the bank. D)It is the interest rate charged by the bank minus the expected inflation rate. E)It is the interest rate charged by the bank minus the interest rate the bank pays to its depositors.
C)It is the interest rate charged by the bank.
The amount of money that the public wants to hold in the form of cash will A)be unaffected by any change in interest rates or the price level B)increase if interest rates increase C)decrease if interest rates increase D)increase if the price level decreases E)decrease if the price level remains constant
C)decrease if interest rates increase
If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to A)pursue an expansionary monetary policy because it is required to do so by law whenever output is below the full-employment level B)pursue an expansionary fiscal policy because it is required to do so by law whenever output is below the full-employment level C)lower the discount rate and buy bonds on the open market to generate an increase in output D)lower the required reserve ratio and sell bonds on the open market to generate an increase in output E)raise the discount rate and lower the required reserve ratio to generate an increase in output
C)lower the discount rate and buy bonds on the open market to generate an increase in output
If the required reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will at most be equal to A)$20 million B)$30 million C)$90 million D)$120 million E)$150 million
D)$120 million
Which of the following is true for bonds but not for stocks? A)Bonds are the least liquid form of assets. B)Bonds represent partial ownership in a company. C)Bonds earn variable rates of return. D)Bonds are interest-bearing assets. E)Bonds have zero opportunity cost.
D)Bonds are interest-bearing assets.
When the central bank sells government bonds on the open market, which of the following will most likely increase? A)Bank reserves B)Price of bonds C)Money supply D)Nominal interest rates E)The required reserve ratio
D)Nominal interest rates
The transaction demand for money is very closely associated with money's use as a A)store of value B)standard unit of account C)measure of value D)medium of exchange E)standard of deferred payment
D)medium of exchange
Assume that Atlantic National Bank has demand deposits of $100,000 and no excess reserves,and that the reserve requirement is 10 percent.A customer withdraws $5,000 from the bank.To meet the reserve requirement, the bank must increase its reserves by A)$500 B)$1,000 C)$2,000 D)$4,000 E)$4,500
E)$4,500
Which of the following changes will necessarily occur as a result of an increase in the nominal interest rate? A)The money demand curve will shift to the left. B)The money demand curve will shift to the right. C)The money supply curve will shift to the left. D)The quantity of money supplied will decrease. E)The quantity of money demanded will decrease.
E)The quantity of money demanded will decrease.
