Chapter 16 – Interest Rates and Monetary Policy
1. A consumer holds money to meet spending needs. This would be an example of the:
2. The transactions demand for money will shift to the:
Chapter 16 – Interest Rates and Monetary Policy
3. The transactions demand for money is least likely to be a function of the:
4. If the dollars held for transactions purposes are, on the average, spent four times a year for
final goods and services, then the quantity of money people will wish to hold for transactions
is equal to:
5. When nominal GDP is $800 billion and, on average, each dollar is spent four times in the
economy over a year, the quantity of money demanded for transactions purposes will be:
Chapter 16 – Interest Rates and Monetary Policy
6. If nominal GDP is $4,000 billion and the amount of money demanded for transactions
purposes is $800 billion, it can generally be concluded that:
7. A decrease in the interest rate will cause a(n):
8. Which of the following varies directly with the interest rate?
Chapter 16 – Interest Rates and Monetary Policy
9. A wealthy executive is holding money for a good time to invest in the stock market. This
action would be an example of the:
10. There is an asset demand for money primarily because of which function of money?
11. An increase in nominal GDP will:
Chapter 16 – Interest Rates and Monetary Policy
12. Which line in the above graph would best reflect the slope of the transactions demand for
money curve?
13. Which line in the above graph would best reflect the slope of the asset demand for money
curve?
Chapter 16 – Interest Rates and Monetary Policy
14. Which line in the above graph would best reflect the slope of the supply of money curve?
15. Refer to the above graph, in which Dt is the transactions demand for money, Dm is the
total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the
asset demand for money would be:
Chapter 16 – Interest Rates and Monetary Policy
16. Refer to the above graph, in which Dt is the transactions demand for money, Dm is the
total demand for money, and Sm is the supply of money. The market is initially in equilibrium
at a 6 percent interest rate. If the money supply increases, then Sm2 will shift to:
17. Refer to the above graph, in which Dt is the transactions demand for money, Dm is the
total demand for money, and Sm is the supply of money. The market is in equilibrium at the 6
percent rate of interest. If the money supply then decreases as shown, the transaction demand
for money will change by:
Chapter 16 – Interest Rates and Monetary Policy
18. Refer to the above graph, in which Dt is the transactions demand for money, Dm is the
total demand for money, and Sm is the supply of money. The market is initially in equilibrium
at a 6 percent rate of interest. If the supply of money increases as shown, then the asset
demand for money will increase by:
19. Refer to the above table. Suppose that the transactions demand for money is equal to 20
percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for
money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest
rate is:
Chapter 16 – Interest Rates and Monetary Policy
20. Refer to the above table. Suppose that the transactions demand for money is $300 billion
and the money supply is $700 billion. A decrease in the money supply to $600 billion would
cause the interest rate to:
Chapter 16 – Interest Rates and Monetary Policy
21. Refer to the above graph which shows the supply and demand for money where Dm1, Dm2,
and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different
levels of the money supply. The initial equilibrium point is A. What will be the new
equilibrium point following an increase in the asset demand for money?
22. Refer to the above graph which shows the supply and demand for money where Dm1, Dm2,
and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different
levels of the money supply. The initial equilibrium point is A. What will be the new
equilibrium point following a decrease in the transactions demand for money?
Chapter 16 – Interest Rates and Monetary Policy
23. Refer to the above graph which shows the supply and demand for money where Dm1, Dm2,
and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different
levels of the money supply. The initial equilibrium point is A. What will be the new
equilibrium point following a decrease in the money supply?
24. When the interest rate falls, the:
25. In which case would the quantity of money demanded by the public tend to increase by
the greatest amount?
Chapter 16 – Interest Rates and Monetary Policy
26. Refer to the above graph. If the supply of money was $200 billion, the interest rate would
be:
27. Refer to the above graph. If the equilibrium interest rate is 4 percent, the supply of money
Chapter 16 – Interest Rates and Monetary Policy
28. Refer to the above graph. If the interest rate rises from 2 percent to 3 percent, the supply
of money must have:
29. Refer to the above graph. If the initial equilibrium interest rate was 5 percent and the
money supply increased by $100 billion, then the new interest rate would be:
30. The interest rate will fall when the:
Chapter 16 – Interest Rates and Monetary Policy
31. Assume that the stock of money is determined by the Federal Reserve and does not
change when the interest rate changes. This situation means that the:
32. An increase in the money supply is likely to reduce:
33. Disequilibrium in the money market is mainly corrected via a change in:
Chapter 16 – Interest Rates and Monetary Policy
34. Which of the following statements is true?
35. A bond with no expiration has an original price of $10,000 and a fixed annual interest
payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will:
36. A few years ago, you bought a bond with no expiration and a fixed annual interest
payment of $1000 at a price of $10,000. If the interest rate in the economy is now 12.5% a
year and you want to sell the bond, the maximum price that you can get for it is:
Chapter 16 – Interest Rates and Monetary Policy
37. A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent
interest. If the market price of the bond rises to $11,000, the annual yield approximately
equals:
38. The price of a bond with no expiration date is originally $1,000 and has a fixed annual
interest payment of $150. If the price of the bond then falls by $100, what will be the interest
rate yield to a new buyer of the bond?
39. When the interest rate in the economy was 10%, the price of a bond with no expiration
date and pays a fixed annual interest of $500 was $5,000. If the interest rate in the economy
Chapter 16 – Interest Rates and Monetary Policy
40. If bond prices decrease, then the:
41. Loans of the Federal Reserve Banks to commercial banks are:
42. Commercial bank reserves, most of which are held by the Federal Reserve Banks, are:
Chapter 16 – Interest Rates and Monetary Policy
43. U.S. Treasury deposits at the Federal Reserve Banks are:
44. In the Federal Reserve Banks’ consolidated balance sheet in March 2010, the largest asset
item was:
45. In the consolidated balance sheet of the Federal Reserve Banks in March 2010, the largest
single liability item was:
Chapter 16 – Interest Rates and Monetary Policy
Given in the table below that shows the items and figures taken from a consolidated balance
sheet of the twelve Federal Reserve Banks. All figures are in billions of dollars.
46. In the above balance sheet for the Federal Reserve, the liabilities and net worth would be
items 7 and:
47. In the above balance sheet for the Federal Reserve, the assets would be items 5 and:
Chapter 16 – Interest Rates and Monetary Policy
48. In the above balance sheet for the Federal Reserve, there would be assets of:
49. The lending ability of commercial banks increases when the:
50. The conduct of monetary policy in the United States is the main responsibility of the: