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Chapter 16 - Interest Rates and Monetary Policy
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:
Chapter 16 - Interest Rates and Monetary Policy
3. The desire to hold money for transactions purposes arises because:
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:
Chapter 16 - Interest Rates and Monetary Policy
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:
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:
Chapter 16 - Interest Rates and Monetary Policy
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?
Chapter 16 - Interest Rates and Monetary Policy
12. It is costly to hold money because:
13. An increase in nominal GDP increases the demand for money because:
14. Which of the following is correct?
Chapter 16 - Interest Rates and Monetary Policy
15. The opportunity cost of holding money:
16. The total demand for money will shift to the left as a result of:
17. The asset demand for money is downsloping because:
Chapter 16 - Interest Rates and Monetary Policy
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?
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:
Chapter 16 - Interest Rates and Monetary Policy
21. If the demand for money and the supply of money both decrease, the equilibrium:
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:
Chapter 16 - Interest Rates and Monetary Policy
24. Refer to the above diagram of the market for money. The downward slope of the money
demand curve Dm is best explained in terms of the:
Chapter 16 - Interest Rates and Monetary Policy
25. Refer to the above diagram of the market for money. The vertical money supply curve Sm
reflects the fact that:
26. Refer to the above diagram of the market for money. The equilibrium interest rate is:
27. Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of
i3 is not sustainable because the:
Chapter 16 - Interest Rates and Monetary Policy
28. Refer to the above diagram of the market for money. Other things equal, the money
demand curve in the diagram would shift leftward if:
Answer the next question on the basis of the following information for a bond having no
expiration date: bond price = $1000; bond fixed annual interest payment = $100; bond annual
interest rate = 10 percent.
29. Refer to the above information. If the price of this bond falls by $200, the interest rate
will:
Chapter 16 - Interest Rates and Monetary Policy
16-12
30. Refer to the above information. If the price of this bond increases to $1250, the interest
rate will:
31. Which of the following statements is correct?
Chapter 16 - Interest Rates and Monetary Policy
32. Refer to the above market for money diagrams. The asset demand for money is shown by:
33. Refer to the above market for money diagrams. Curve D1 represents the:
34. Refer to the above market for money diagrams. The total demand for money is shown by:
Chapter 16 - Interest Rates and Monetary Policy
35. Refer to the above 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. Refer to the above market for money diagrams. If the interest rate was at 3 percent, people
would:
37. Refer to the above market for money diagrams. If the interest rate was at 8 percent, people
would:
Chapter 16 - Interest Rates and Monetary Policy
38. Refer to the above market for money diagrams. If the Federal Reserve increased the stock
of money, the:
39. Suppose the demand for money and the supply of money increase simultaneously. We
can:
40. Other things equal, if there is an increase in nominal GDP:
Chapter 16 - Interest Rates and Monetary Policy
41. Other things equal, if the supply of money is reduced:
Answer the next question on the basis of the following table in which columns (1) and (2)
indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset
demand (Da) for money:
42. The above data suggest that the amount of money demanded for transactions:
Chapter 16 - Interest Rates and Monetary Policy
16-17
43. The above data suggest that the amount of money that society wishes to hold as an asset:
Answer the next question on the basis of the following information. For transactions,
households and businesses want to hold an amount of money equal to one half of nominal
GDP. The table shows the amounts of money they want to hold as an asset at various interest
rates.
Chapter 16 - Interest Rates and Monetary Policy
45. Refer to the above information. If nominal GDP is $200 and the interest rate is 6 percent,
the total amount of money that households and businesses will want to hold is:
46. Refer to the above information. If nominal GDP is $300 and the supply of money is $230,
the equilibrium interest rate will be:
47. The price of a bond having no expiration date is originally $8,000 and has a fixed annual
interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer
of the bond an interest rate of:
Chapter 16 - Interest Rates and Monetary Policy
Answer the next question on the basis of the following table:
48. At equilibrium in the above market for money, the total amount of money demanded is:
49. Refer to the above table. The equilibrium interest rate is:
Chapter 16 - Interest Rates and Monetary Policy
50. Refer to the above table. An increase in the money supply of $20 billion will cause the
equilibrium interest rate to:
51. Which of the following is an asset on the consolidated balance sheet of the Federal
Reserve Banks?
52. Reserves must be deposited in the Federal Reserve Banks by:
