Question 1

-Refer to Figure 14-8 above.If the interest rate is currently 5%,

Accepted Answer

A)   the interest rate must fall to restore equilibrium.
B)   the interest rate will not change.
C)   the interest rate must rise to restore equilibrium.
D)   there is an excess supply of money.
E)   the excess demand for money is $200 billion.

Question 2

Open market sales of bonds by the Federal Reserve drain reserves from the banking system and shift

Accepted Answer

A)   the allocation of wealth between bonds and stocks
B)   the economy toward a trough in the business cycle
C)   the money supply curve leftward
D)   reserves to nonmember banks
E)   the demand for money curve leftward

Question 3

If the equilibrium interest rate is 4% but the current interest rate is 6%,

Accepted Answer

A)   bond prices will rise.
B)   money demand will decrease.
C)   money demand will increase.
D)   bond prices will fall.
E)   the money supply will decrease.

Question 4

The money market is in equilibrium when there is no excess supply of or excess demand for bonds.

Accepted Answer

A) True 
 B)False

Question 5

If there is an excess supply of money in the economy,

Accepted Answer

A)   there is also an excess demand for money
B)   there is also an excess demand for bonds
C)   there is also an excess supply of bonds
D)   the interest rate will rise
E)   the Fed must intervene to restore equilibrium

Question 6

The federal funds rate is

Accepted Answer

A)   determined in a market but targeted by the Fed.
B)   chosen by the Fed and enforced on the banks.
C)   chosen by Congress and enforced on the Fed.
D)   chosen by Congress and enforced on the banks.
E)   determined in the market and beyond the control of the Fed.

Question 7

If there is an excess supply of money in the money market,there must be an excess supply of bonds in the bond market.

Accepted Answer

A) True 
 B)False

Question 8

If the price of a bond increases,the interest rate (or rate of return on the bond)decreases.

Accepted Answer

A) True 
 B)False

Question 9

If the interest rate decreases,there will be

Accepted Answer

A)   a movement leftward from one point on the money demand curve to another point on the same curve
B)   no change in the quantity of money demanded
C)   a leftward shift of the entire money demand curve caused by a demand shock
D)   a rightward shift of the entire money demand curve
E)   a movement rightward from one point on the money demand curve to another point on the same curve

Question 10

If Johanna purchases a bond for $4,500 that promises to pay her $5,000 one year later,what is the interest rate on the bond?

Accepted Answer

A)   5.3 percent
B)   5.6 percent
C)   10.0 percent
D)   11.1 percent
E)   10.5 percent

Question 11

An increase in the money supply will increase both the amount of money demanded and output.

Accepted Answer

A) True 
 B)False

Question 12

An excess supply of money implies an excess

Accepted Answer

A)   supply of corporate stock
B)   demand for bonds
C)   supply of bonds
D)   demand for corporate stock
E)   demand for goods and services

Question 13

An excess demand for money exists if the interest rate is below the equilibrium rate.

Accepted Answer

A) True 
 B)False

Question 14

The amount of wealth that an individual wishes to hold as money is determined by

Accepted Answer

A)   the price level
B)   the price level and real income
C)   real income
D)   real income and the interest rate
E)   the price level,real income,and the interest rate

Question 15

If the Fed reduces the money supply,there will be a decline in

Accepted Answer

A)   government purchases
B)   unemployment
C)   purchases of consumer durables
D)   demand for bonds
E)   deflationary pressures

Question 16

If the aggregate expenditure line has shifted downward,which of the following is the most likely cause?

Accepted Answer

A)   There have been reports of good economic news.
B)   The Fed has conducted an open market sale of bonds.
C)   Income tax rates have been lowered.
D)   The Fed has conducted an open market purchase of bonds.
E)   Exports have increased.

Question 17

The federal funds rate is closely tied to many interest rates on many types of loans.Which one is the exception?

Accepted Answer

A)   Auto loan rates
B)   Adjustable rate mortgages
C)   Adjustable rate home equity loans
D)   30-year Treasury bonds
E)   Business loans

Question 18

A reduced interest rate stimulates investment by

Accepted Answer

A)   improving the prospects for a large profit from new investment
B)   enabling firms to ignore the opportunity costs of financing new investment
C)   increasing the opportunity cost of the investment
D)   reducing the cost of the investment
E)   signaling the existence of eager buyers

Question 19

If the Fed wants to lower the interest rate,it will

Accepted Answer

A)   buy bonds and decrease the money supply.
B)   buy bonds and increase the money supply.
C)   sell bonds and decrease the money supply.
D)   sell bonds and increase the money supply.
E)   sell bonds and decrease money demand.

Question 20

If the Fed conducted an open market sale of bonds,what would most likely happen in the bond market?

Accepted Answer

A)   The excess demand for bonds would cause the price of bonds to fall.
B)   The excess supply of bonds could cause the price of bonds to rise.
C)   There would be no effect in the bond market.
D)   The excess supply of bonds would cause the price of bonds to fall.
E)   The excess demand for bonds would cause the price of bonds to rise.

Exam 26: The Money Market and Monetary Policy

A reduced interest rate stimulates investment by

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If Johanna purchases a bond for $4,500 that promises to pay her $5,000 one year later,what is the interest rate on the bond?

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An increase in the money supply will increase both the amount of money demanded and output.

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The money market is in equilibrium when there is no excess supply of or excess demand for bonds.

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The federal funds rate is closely tied to many interest rates on many types of loans.Which one is the exception?

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An excess supply of money implies an excess

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If the aggregate expenditure line has shifted downward,which of the following is the most likely cause?

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The amount of wealth that an individual wishes to hold as money is determined by

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An excess demand for money exists if the interest rate is below the equilibrium rate.

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If the Fed reduces the money supply,there will be a decline in

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If there is an excess supply of money in the money market,there must be an excess supply of bonds in the bond market.

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If the Fed wants to lower the interest rate,it will

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The federal funds rate is

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Open market sales of bonds by the Federal Reserve drain reserves from the banking system and shift

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If the interest rate decreases,there will be

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If the Fed conducted an open market sale of bonds,what would most likely happen in the bond market?

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If there is an excess supply of money in the economy,

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If the price of a bond increases,the interest rate (or rate of return on the bond)decreases.

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-Refer to Figure 14-8 above.If the interest rate is currently 5%,

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If the equilibrium interest rate is 4% but the current interest rate is 6%,

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