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Exam 11: Money Demand and the Equilibrium Interest Rate

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Question 21

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If the interest rate is higher than normal,people are more likely to hold

A) bonds instead of money because as the interest rate starts to rise,the value of the bonds will increase.
B) bonds instead of money because the opportunity cost of money is high.
C) money instead of bonds because the brokerage fees and other costs of buying bonds are high when the interest rate is low.
D) money instead of bonds because there is a speculative motive for holding a larger amount of money.

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Question 22

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Refer to the information provided in Figure 11.6 below to answer the questions that follow. Figure 11.6 -Refer to Figure 11.6.If the demand for money curve shifts from to ,the equilibrium interest rate will

A) increase from 5% to 7%.
B) increase from 5% to 10%.
C) decrease from 7% to 5%.
D) remain at 7%.

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Question 23

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Refer to the information provided in Figure 11.2 below to answer the questions that follow. Figure 11.2 -Refer to Figure 11.2.Suppose that money demand is currently at Point B.A movement to Point D could be caused by

The average monthly balance in Aaron's bank account is $2,000.Aaron spends the same amount of money each day during the month,and at the end of the month his account balance is $0.Aaron's monthly starting balance is

Refer to the information provided in Table 11.1 below to answer the questions that follow. Table 11.1 -Refer to Table 11.1.If it costs $13 each time a bond is sold,the highest profit available is

When the aggregate price level (P) is multiplied by real aggregate income (Y) ,the result is

The price of bonds and the interest rate are

Refer to the information provided in Figure 11.3 below to answer the questions that follow. Figure 11.3 -Refer to Figure 11.3.At an interest rate of 3%,there is a

Refer to the information provided in Figure 11.5 below to answer the questions that follow. Figure 11.5 -Refer to Figure 11.5.The money supply curve will shift from to ,if

Federal funds rate is the tax rate on income.

The market-determined prices of existing bonds and interest rates are directly related.

The optimal money balance will increase as the interest rate rises,ceteris paribus.

The interest rate that banks are charged when they borrow reserves from other banks is the

An increase in nominal aggregate output,ceteris paribus,will cause the demand for money to ________ and the interest rate to ________.

Which of the following events will lead to a decrease in the equilibrium interest rate?

If people think interest rates are above their normal levels,they will want to hold bonds in anticipation of a capital gain when interest rates fall to their normal level.

Refer to the information provided in Figure 11.7 below to answer the questions that follow. Figure 11.7 -Refer to Figure 11.7.If the demand for money curve shifts from to ,the equilibrium interest rate will

The rate that the Fed controls most closely through its open-market operations is the

Refer to the information provided in Table 11.1 below to answer the questions that follow. Table 11.1 -Refer to Table 11.1.If the period covered by Table 11.1 is one year,the interest rate paid on bonds

To increase the money supply and decrease interest rates,the Fed could purchase government securities.