978-1259723223 Test Bank TBChap036 Part 1

Chapter 36 Interest Rates and Monetary Policy Answer Key

Multiple Choice Questions

1.

The transactions demand for money is most closely related to money functioning as a

2.

The asset demand for money is most closely related to money functioning as a

3.

The desire to hold money for transactions purposes arises because

36-2

written consent of McGraw-Hill Education.

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

4.

The asset demand for money

5.

On a diagram where the interest rate and the quantity of money demanded are shown on

the vertical and horizontal axes, respectively, the

transactions demand for money can be

represented by

6.

On a diagram where the interest rate and the quantity of money demanded are shown on

the vertical and horizontal axes respectively, the asset

demand for money can be

represented by

36-3

written consent of McGraw-Hill Education.

A.

a line parallel to the horizontal axis.

B.

a vertical line.

C.

a downsloping line or curve from left to right.

D. an upsloping line or curve from left to right.

AACSB: Knowledge Application

A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

7.

On a diagram where the interest rate and the quantity of money demanded are shown on

the vertical and horizontal axes respectively, the total

demand for money can be found by

8.

The total demand for money curve will shift to the right as a result of

36-4

written consent of McGraw-Hill Education.

market for money.

Test Bank: I

To pi c: Interest Rates

9.

Which of the following statements is correct? Other things equal,

10.

If nominal GDP is $600 billion and, on the average, each dollar is spent three times per

year, then the amount of money demanded for transactions

purposes will be

11.

In which of the following situations is it certain that the quantity of money demanded by

the public will decrease?

36-5

written consent of McGraw-Hill Education.

A.

nominal GDP decreases and the interest rate decreases

B.

nominal GDP increases and the interest rate decreases

C.

nominal GDP decreases and the interest rate increases

D. nominal GDP increases and the interest rate increases

AACSB: Knowledge Application

A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

12.

It is costly to hold money because

13.

An increase in nominal GDP increases the demand for money because

36-6

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To pi c: Interest Rates

14.

Which of the following is correct?

15.

The opportunity cost of holding money

16.

The total demand for money will shift to the left as a result of

36-7

written consent of McGraw-Hill Education.

AACSB: Knowledge Application

A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

17.

The asset demand for money is downsloping because

18.

(Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y +

80 – 4i, where L is the amount of money demanded, Y is

gross domestic product, and i is the

interest rate. If gross domestic product is $200 and the interest rate is 10 (percent), what

amount of money will

society want to hold?

36-8

written consent of McGraw-Hill Education.

To pi c: Interest Rates

19.

If the quantity of money demanded exceeds the quantity supplied,

20.

The equilibrium rate of interest in the market for money is determined by the intersection

of the

21.

If the demand for money and the supply of money both decrease, the equilibrium

36-9

written consent of McGraw-Hill Education.

AACSB: Knowledge Application

A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

22.

If, in the market for money, the quantity of money demanded exceeds the money supply,

the interest rate will

23.

If, in the market for money, the amount of money supplied exceeds the amount of money

households and businesses want to hold, the interest rate

will

24.

Refer to the diagram of the market for money. The downward slope of the money demand

curve Dm is best explained in terms of the

36–11

25.

Refer to the diagram of the market for money. The vertical money supply curve Sm reflects

the fact that

36–12

26.

Refer to the diagram of the market for money. The equilibrium interest rate is

36–13

27.

Refer to the diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not

sustainable because the

28.

Refer to the diagram of the market for money. Other things equal, the money demand curve

in the diagram would shift leftward if

29.

Answer the question on the basis of the following information for a bond having no

expiration date: bond price = $1,000; bond fixed annual

interest payment = $100; bond

annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate will

36–15

written consent of McGraw-Hill Education.

C.

fall by 2.5 percentage points.

D.

fall by 5 percentage points.

AACSB: Knowledge Application

A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

30.

Answer the question on the basis of the following information for a bond having no

expiration date: bond price = $1,000; bond fixed annual

interest payment = $100; bond

annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest

rate will

31.

Which of the following statements is correct?

36–16

written consent of McGraw-Hill Education.

market for money.

Test Bank: I

To pi c: Interest Rates

32.

Refer to the given market-for–money diagrams. The asset demand for money is shown by

33.

36–17

Refer to the given market-for–money diagrams. Curve D1 represents the

34.

Refer to the given market-for–money diagrams. The total demand for money is shown by

35.

Refer to the given market-for–money diagrams. If each dollar held for transactions is spent

four times per year on the average, we can infer that the

36–19

written consent of McGraw-Hill Education.

Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the

market for money.

Test Bank: I

To pi c: Interest Rates

Type: Graph

36.

Refer to the given market-for–money diagrams. If the interest rate was at 3 percent, people

would

37.

Refer to the given market-for–money diagrams. If the interest rate was at 8 percent, people

would