1. In the ATM model of money, the opportunity cost of holding money is determined by
a. the rate of inflation.
b. the cost of going to an ATM.
c. the charges levied on every ATM transaction.
d. the nominal interest rate and the possibility of having her money stolen.
2. What is the average cash holdings of someone who visits the ATM once every 8 days and spends $25 on a daily
basis?
a. $12.50
b. $25
c. $100
d. $200
3. How much is someone who visits the ATM once every 7 days and has an average cash balance of $70 expected to
spend daily?
a. $5
b. $10
c. $15
d. $20
4. Someone who has an average cash balance of $45 and spends $15 per day will visit the ATM once in every
days.
a. 4
b. 5
c. 6
d. 7
5. The cost of going to an ATM is $1 in an economy. If the nominal interest rate in the economy is 5 percent, what is
the total cost associated with holding cash for an individual who spends $10 daily and has a 15 percent probability of
having his cash lost or stolen? Assume that he visits the ATM once in every T days.
a. (182.5/T) + (0.2 × T)
b. (182.5/T) + (0.2 × T)
c. (365/T) + (0.5 × T)
d. (365/T) + T
6. The cost of going to an ATM is $2 in an economy. If the nominal interest rate in the economy is 1 percent, what is
the total cost associated with holding cash for an individual who spends $15 daily and has a 9 percent probability of
having his cash lost or stolen? Assume that he visits the ATM once in every T days.
a. (365/T) + (0.75 × T)
b. (730/T) + (0.75 × T)
c. (730/T) + (1.5 × T)
d. (365/T) + (1.5 × T)
7. The nominal interest rate in an economy is 5 percent, and there is also a 15 percent probability of having cash lost or
stolen in the economy. Given this information, what is the cost of going to the ATM for an individual who spends $10
daily and has a total cost of holding cash = (365/T) + T. Assume that the individual visits the ATM once in every T
days.
a. $1
b. $2
c. $3
d. $4
8. If the cost of going to the ATM in an economy is $1 and the nominal interest rate is 5 percent, someone who spends
$10 each day and has the total cost of holding cash = (365/T) + T, has a
stolen. Assume that the individual visits the ATM once in every T days.
a. 5 percent
b. 10 percent
c. 15 percent
d. 20 percent
probability of having his cash lost or
9. An individual spends $5 daily and also spends an additional $1.50 each time he goes to an ATM. There is also a 12
percent risk of having his cash lost or stolen. If his total cost of holding cash is (547.50/T) + (0.375 × T), then what is
the ongoing nominal interest rate in the economy? Assume that the individual visits the ATM once in every T days.
a. 1 percent.
b. 2 percent.
c. 3 percent.
d. 4 percent.
10. If the nominal interest rate is 3 percent and the cost of going to the ATM is $1.50, someone who has a 12 percent
probability of having his cash lost or stolen and has a total cost of holding cash equal to (547.50/T) + (0.375 × T)
spends daily. Assume that the individual visits the ATM once in every T days.
a. $20
b. $15
c. $10
d. $5
11. If the cost of going to the ATM is $1 and the nominal interest rate is 5 percent, someone who has a 15 percent
probability of having his cash lost or stolen and spends $10 each day will go to the ATM once in every
approximately.
a. 10
b. 13
c. 16
d. 19
days
12. If the cost of going to the ATM is $2 and the nominal interest rate is 1 percent, someone who has a 9 percent
probability of having his cash lost or stolen and spends $15 each day will go to the ATM once in every
approximately.
a. 25
b. 31
c. 37
d. 43
days
13. In the ATM model, the demand for money depends on
a. the nominal interest rate and the money supply.
b. the nominal interest rate and the ongoing rate of inflation.
c. the nominal interest rate, the cost of obtaining cash, the probability of loss or theft, and the money supply.
d. the nominal interest rate, the cost of obtaining cash, the probability of loss or theft, and the amount of
spending.
14. In the ATM model, if the nominal interest rate declines, then the
a. number of days between visits to the ATM and the quantity of money demanded both rise.
b. number of days between visits to the ATM and the quantity of money demanded both fall.
c. number of days between visits to the ATM rises and the quantity of money demanded falls.
d. number of days between visits to the ATM falls and the quantity of money demanded rises.
15. In the ATM model, if the cost of going to an ATM increases,
a. the number of days between visits to the ATM rises and the quantity of money demanded falls.
b. the number of days between visits to the ATM falls and the quantity of money demanded rises.
c. both the number of days between visits to the ATM and the quantity of money demanded rises.
d. both the number of days between visits to the ATM and the quantity of money demanded falls.
16. In the ATM model of the demand for cash, if a person’s daily amount of spending increases, then
a. the number of days between visits to the ATM falls and the quantity of money demanded rises.
b. the number of days between visits to the ATM rises and the quantity of money demanded falls.
c. both the number of days between visits to the ATM and the quantity of money demanded rises.
d. both the number of days between visits to the ATM and the quantity of money demanded falls.
17. In the ATM model, if the probability of loss or theft decreases, then
a. the number of days between visits to the ATM rises and the quantity of money demanded falls.
b. the number of days between visits to the ATM falls and the quantity of money demanded rises.
c. both the number of days between visits to the ATM and the quantity of money demanded rises.
d. both the number of days between visits to the ATM and the quantity of money demanded falls.
18. One of the debatable assumptions on which the ATM model for the demand for cash is based on is that
a. money supply is constant.
b. individuals spend the same amount of money every day.
c. the ongoing rate of inflation is always greater than 10%.
d. cash held in banks do not attract interest.
19. A variable that is determined outside a model is called a(n)
a. dynamic variable.
b. static variable.
c. endogenous variable.
d. exogenous variable.
20. A variable that is determined within a model is called
a. a dynamic variable.
b. a static variable.
c. an endogenous variable.
d. an exogenous variable.
21. A general-equilibrium model is a model in which
a. all key macroeconomic variables are endogenous.
b. more than one key macroeconomic variable is exogenous.
c. only one macroeconomic variable is exogenous.
d. none of the key macroeconomic variables are endogenous.
22. A partial-equilibrium model is a model in which
a. all key macroeconomic variables are endogenous.
b. some key macroeconomic variables are exogenous.
c. all key macroeconomic variables are discrete random variables.
d. none of the key macroeconomic variables are endogenous.
23. In the ATM model of the demand for cash
a. both the nominal interest rate and the cost of going to an ATM are endogenous variables.
b. both the nominal interest rate and the cost of going to an ATM are exogenous variables.
c. the nominal interest rate is an exogenous variable while the average cash balances is an endogenous variable.
d. the nominal interest rate is an endogenous variable while the cost of going to an ATM is an exogenous
variable.
24. In the ATM model of the demand for cash
a. the amount that an individual withdraws is an exogenous variable while the probability of theft or loss is an
endogenous variable.
b. the amount that an individual withdraws is an endogenous variable while the probability of theft or loss is an
exogenous variable.
c. both the amount that an individual withdraws and the probability of loss and theft are exogenous variables.
d. both the amount that an individual withdraws and the probability of loss and theft are endogenous variables.
25. The ATM model of the demand for cash is a
a. general–equilibrium model.
b. steady state model.
c. partial-equilibrium model.
d. no–equilibrium model.
26. Which of the following statements is true?
a. The ATM model of money is a general-equilibrium model.
b. The opportunity cost of holding money in the ATM model increases when the nominal interest rate declines.
c. In a general–equilibrium model, most of the key macroeconomic variables are exogenous.
d. Normally, results from a general equilibrium model can be applied to a wider range of problems than the
results from a partial-equilibrium model.
27. The model in which money demand and supply determine the nominal interest rate is known as the
a. liquidity-preference model.
b. ATM model.
c. aggregate money model.
d. monetarist model.
28. The nominal interest rate is
a. endogenous in the ATM model, while it is exogenous in the liquidity–preference model.
b. exogenous in the ATM model, while it is endogenous in the liquidity–preference model.
c. endogenous in both the liquidity–preference and ATM model.
d. exogenous in both the liquidity-preference and ATM model.
29. The liquidity-preference model assumes that the amount people spend depends on
a. their real incomes and the incomes of other people around them.
b. the cost of withdrawing money from an ATM.
c. the probability of theft and loss of money.
d. their real incomes and prices of goods and services.
30. In the liquidity-preference model, the nominal interest rate is represented on the vertical axis and the quantity of
money is represented on the horizontal axis. Hence,
a. the money demand curve slopes downward and the money supply curve is vertical.
b. the money demand curve slopes upward and the money supply curve is horizontal.
c. both the money demand and money supply curve slope downward.
d. both the money demand and money supply curve slope upward.
31. In the liquidity-preference model, the slope of the money supply curve implies that
a. money demand varies directly with the nominal interest rate.
b. money supply varies directly with the nominal interest rate.
c. nominal interest rate has no effect on the money demand.
d. nominal interest rate has no effect on the money supply.
32. In the liquidity-preference model, if the nominal interest rate is higher than the equilibrium interest rate
a. both bond prices and nominal interest rate will eventually fall.
b. both bond prices and nominal interest rate will eventually rise further
c. bond prices will fall and nominal interest rate will eventually rise further
d. bond prices will rise and nominal interest rate will eventually fall.
33. In the liquidity-preference model, if the nominal interest rate is lower than the equilibrium interest rate
a. both bond prices and nominal interest rate will eventually fall further.
b. both bond prices and nominal interest rate will eventually rise.
c. bond prices will fall and nominal interest rate will eventually rise.
d. bond prices will rise and nominal interest rate will eventually fall further.
34. In the liquidity-preference model,
a. both the nominal interest rate and the price level in the economy are exogenous variables.
b. both the nominal interest rate and the price level in the economy are endogenous variables.
c. the nominal interest rate is an exogenous variable, while the price level in the economy is an endogenous
variable.
d. the nominal interest rate is an endogenous variable, while the price level in the economy is an exogenous
variable.
35. In the liquidity-preference model, an increase in people’s incomes causes the
a. money supply curve to shift to the right.
b. money supply curve to shift to the left.
c. money demand curve to shift to the left.
d. money demand curve to shift to the right.
36. In the liquidity-preference model, a decrease in people’s incomes causes
a. both the nominal interest rate and the equilibrium quantity of money to increase.
b. the nominal interest rate to increase and the equilibrium quantity of money to decrease.
c. the nominal interest rate to decrease and the equilibrium quantity of money to remain unchanged.
d. both the nominal interest rate and the equilibrium quantity of money to decrease.
37. In the liquidity-preference model, a decline in prices causes the
a. money supply curve to shift to the right.
b. money supply curve to shift to the left.
c. money demand curve to shift to the left.
d. money demand curve to shift to the right.
38. In the liquidity-preference model, an increase in prices causes
a. both the nominal interest rate and the equilibrium quantity of money to decrease.
b. the nominal interest rate to increase and the equilibrium quantity of money to remain unchanged.
c. the nominal interest rate to decrease and the equilibrium quantity of money to remain unchanged.
d. both the nominal interest rate and the equilibrium quantity of money to increase.