ECON 529 Questions and Answers TESTBANK (All Chapters Covered)
Testbank 01 - Chapter 16 Interest Rates and Monetary Policy
... [Show More] -------------------------------------------------------------------------------- 1. The transactions demand for money is most closely related to money functioning as a: A. unit of account. B. medium of exchange. C. store of value. D. measure of value. Points Earned: 0/1 Correct Answer: B Your Response: 2. The asset demand for money is most closely related to money functioning as a: A. unit of account. B. medium of exchange. C. store of value. D. measure of value. Points Earned: 0/1 Correct Answer: C Your Response: 3. The desire to hold money for transactions purposes arises because: A. receipts of income and expenditures are not perfectly synchronized. B. people fear that prices will rise. C. households want money on hand in case a good financial investment opportunity arises. D. low interest rates reduce the opportunity cost of holding money. Points Earned: 0/1 Correct Answer: A Your Response: 4. The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP. Points Earned: 0/1 Correct Answer: B Your Response: 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: 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. Points Earned: 0/1 Correct Answer: B Your Response: 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: 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. Points Earned: 0/1 Correct Answer: C Your Response: 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: A. horizontally adding the transactions and the asset demand for money. B. vertically subtracting the transactions demand from the asset demand for money. C. horizontally subtracting the asset demand from the transactions demand for money. D. vertically adding the transactions and the asset demand for money. Points Earned: 0/1 Correct Answer: A Your Response: 8. The total demand for money curve will shift to the right as a result of: A. an increase in nominal GDP. B. an increase in the interest rate. C. a decline in the interest rate. D. a decline in nominal GDP. Points Earned: 0/1 Correct Answer: A Your Response: 9. Which of the following statements is correct? Other things equal: A. a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. B. a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged. C. deflation will shift both the transactions demand curve for money and the total money demand curve to the left. D. inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged. Points Earned: 0/1 Correct Answer: C Your Response: 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: A. $1800 billion. B. $600 billion. C. $200 billion. D. $1200 billion. Points Earned: 0/1 Correct Answer: C Your Response: 11. In which of the following situations is it certain that the quantity of money demanded by the public will decrease? 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 Points Earned: 0/1 Correct Answer: C Your Response: 12. It is costly to hold money because: A. deflation may reduce its purchasing power. B. in doing so one sacrifices interest income. C. bond prices are highly variable. D. the rate at which money is spent may decline. Points Earned: 0/1 Correct Answer: B Your Response: 13. An increase in nominal GDP increases the demand for money because: A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline. Points Earned: 0/1 Correct Answer: B Your Response: 14. Which of the following is correct? A. The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. B. The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. C. The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. D. The asset demand for money is downsloping because bond prices and the interest rate are directly related. Points Earned: 0/1 Correct Answer: B Your Response: 15. The transactions demand for money will shift to the: A. right when the interest rate increases. B. left when the interest rate decreases. C. right when aggregate income increases. D. right when aggregate income decreases. Points Earned: 0/1 Correct Answer: C Your Response: 16. The opportunity cost of holding money: A. is zero because money is not an economic resource. B. varies inversely with the interest rate. C. varies directly with the interest rate. D. varies inversely with the level of economic activity. Points Earned: 0/1 Correct Answer: C Your Response: 17. The total demand for money will shift to the left as a result of: A. a decline in nominal GDP. B. an increase in the price level. C. a change in the interest rate. D. an increase in nominal GDP. Points Earned: 0/1 Correct Answer: A Your Response: 18. The asset demand for money is downsloping because: A. the opportunity cost of holding money increases as the interest rate rises. B. it is more attractive to hold money at high interest rates than at low interest rates. C. bond prices rise as interest rates rise. D. the opportunity cost of holding money declines as the interest rate rises. Points Earned: 0/1 Correct Answer: A Your Response: 19. (Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 - 4 i, 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? A. $200 B. $120 C. $320 D. $160 Points Earned: 0/1 Correct Answer: B Your Response: 20. If the quantity of money demanded exceeds the quantity supplied: A. the supply-of-money curve will shift to the left. B. the demand-for-money curve will shift to the right. C. the interest rate will rise. D. the interest rate will fall. Points Earned: 0/1 Correct Answer: C Your Response: 21. The equilibrium rate of interest in the market for money is determined by the intersection of the: A. supply of money curve and the asset demand for money curve. B. supply of money curve and the transactions demand for money curve. C. supply of money curve and the total demand for money curve. D. investment demand curve and total demand for money curve. Points Earned: 0/1 Correct Answer: C Your Response: 22. If the demand for money and the supply of money both decrease, the equilibrium: A. interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. B. quantity of money and the equilibrium interest rate will both increase. C. quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. D. quantity of money will decline, but we cannot predict the change in the equilibrium interest rate. Points Earned: 0/1 Correct Answer: D Your Response: 23. If in the market for money the quantity of money demanded exceeds the money supply, the interest rate will: A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money. Points Earned: 0/1 Correct Answer: B Your Response: 24. 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: A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money. Points Earned: 0/1 Correct Answer: D Your Response: [Show Less]