7) What efect does an increase in the price level have on the demand for money and the
demand for money curve?
Skill: Level 1: Deinition
Section: Checkpoint 12.1
Status: Old
AACSB: Relective thinking
8) What efect does an increase in real GDP have on the demand for money?
Skill: Level 1: Deinition
Section: Checkpoint 12.1
Status: Old
AACSB: Relective thinking
9) How would a widespread adoption of credit cards afect the demand for money and the
demand for money curve?
Skill: Level 2: Using deinitions
Section: Checkpoint 12.1
Status: Old
AACSB: Relective thinking
10) In the United States since 1970, how has the use of credit cards afected the demand
for M1 as a percentage of GDP?
Skill: Level 1: Deinition
Section: Checkpoint 12.1
Status: Old
AACSB: Relective thinking
81
11) “Because the nominal interest rate is the opportunity cost of holding money, the supply
curve of money slopes downward.” Is the previous statement correct or incorrect?
Skill: Level 1: Deinition
Section: Checkpoint 12.1
Status: Old
AACSB: Written and oral communication
12) How is the price of a inancial asset, such as government bonds, related to the interest
rate?
Skill: Level 1: Deinition
Section: Checkpoint 12.1
Status: Old
AACSB: Relective thinking
13) Jeremy purchases a bond that pays $600 in interest. If Jeremy paid $9,000 for the bond,
what is the interest rate? If Jeremy paid $10,000 for the bond, what is the interest rate?
How did a rise in the price of the bond afect the interest rate?
Skill: Level 2: Using deinitions
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
14) If a bond pays $50 a year to its holder and you buy it for $200, what is your interest
rate?
Skill: Level 2: Using deinitions
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
82
15) Suppose the quantity of money is greater than the quantity of money demanded. In the
short run, what occurs to set the quantity of money equal to the quantity of money
demanded?
Skill: Level 2: Using deinitions
Section: Checkpoint 12.1
Status: Old
AACSB: Written and oral communication
16) In the short run, how does the Fed change the nominal interest rate?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Relective thinking
17) Suppose in the money market the equilibrium nominal interest rate is 5 percent. If the
Fed increases the quantity of money, what is the efect on the nominal interest rate?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
83
18) In the short run, how is the nominal interest rate determined? If the nominal interest
rate is less than the equilibrium nominal interest rate, what occurs?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Written and oral communication
19) Assume the Fed wants to lower the interest rate. How does the Fed lower the interest
rate in the short run?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
84
20) In the igure below, label the axes and then draw a demand for money curve. Illustrate
an increase in the demand for money.
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
85
21) The above table has the demand for money schedule.
a. If the Fed supplies $1.1 trillion dollars, what is the equilibrium nominal interest rate?
b. Discuss how equilibrium is restored if the interest rate is greater than the equilibrium
rate found in part (a).
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
22) The above table has the demand for money schedule.
a. If the Fed sets the quantity of money equal to $1.0 trillion, what is the equilibrium
nominal interest rate?
b. If the Fed wants the interest rate to be 4 percent, what must it do?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
86
23) The above diagram has a demand for money curve. Suppose the Fed initially sets the
quantity of money equal to $0.6 trillion. Draw the supply of money curve in the igure.
What is the equilibrium interest rate? Now suppose the Fed increases the quantity of
money to $0.9 trillion. Draw the new supply curve. What is the new equilibrium interest
rate?
Skill: Level 3: Using models
Section: Checkpoint 12.1
Status: Old
AACSB: Analytical thinking
87