macro: the money market: foundational concepts
If the reserve requirement in a banking system is lowered, what is the most likely consequence?
The nominal interest rate decreases.
Liquidity preference theory is used to motivate
the demand for money.
Which of the following terms describes why households hold money to buy things?
transactions motive
Which of the following leads to a decrease in the demand for money?
A lower price level
Which of the following best describes the relationship shown by the demand for money?
A tradeoff exists between earning interest and the transactions motive
Which of the following best describes why the money supply curve is vertical?
Central banks determine the monetary base independent of the interest rate
Nominal interest rates increased in Hamsterville, and there is less money available. Which of the following could have caused this change?
a decrease in the money supply
The nominal interest rate in Maxistan decreased, but there is no change in people's liquidity preferences. Which of the following could have caused this change?
an increase in the money supply
Which of the following graphs shows the correct relationship between the interest rate and the money supply when a country's monetary base is determined by a central bank?
nir1 and nir2 are equal with SM and qM1
Which of the following statements is true when the money market is in equilibrium?
No economic forces are acting on the economy to change the interest rate.
What happens to the nominal interest rate and the quantity of money in the money supply if the demand for money increases?
Nominal interest rate increases; no change in the quantity of money.
The amount of money that people want to hold is greater than the money supply at the current interest rate. Which of the following describes the process that returns the money market to equilibrium when the quantity of money demanded is greater than the money supply?
People sell their bonds, which lowers bond prices, which in turn increases interest rates.
Which of the following scenarios will cause an increase in the demand for money in the money market?
The consumer price index (CPI) increases.
In the money market, if nominal interest rates have increased and the quantity of money decreased, which of the following could have caused this change?
The money supply decreased.
Assume that people keep all money in banks. What happens if banks decide to start keeping excess reserves instead of fully loaning out?
The money supply decreases.
Which of the following best describes how the money supply responds to changes in the nominal interest rate?
The money supply is independent of the interest rate.
Which of the following best describes an equilibrium in the money market?
The nominal interest rate adjusted until people are holding the money they want to hold
If banks decide to keep fewer excess reserves and instead lend more, which of the following is the most likely effect?
The nominal interest rate decreases.