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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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
