An increase in nominal GDP increases the demand for money becausea) 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.

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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.
b) The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.
If the demand for money and the supply of money both decrease, the equilibriuma) 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.
d) quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.
Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate willa) rise by 2.5 percentage points.b) rise by 5 percentage points.c) fall by 2.5 percentage points.d) fall by 5 percentage points.
The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable depositsa) of commercial banks are unchanged, but their reserves increase.b) and reserves of commercial banks both decrease.c) of commercial banks are unchanged, but their reserves decrease.d) and reserves of commercial banks are both unchanged.
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money isa) not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.b) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.c) directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.d) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
d) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum ofa) $1,000.b) $2,000.c) $800.d) $5,000.
When the required reserve ratio is decreased, the excess reserves of member banks area) reduced, but the multiple by which the commercial banking system can lend is unaffected.b) reduced and the multiple by which the commercial banking system can lend is increased.c) increased and the multiple by which the commercial banking system can lend is increased.d) increased and the multiple by which the commercial banking system can lend is reduced.
Suppose that, for every 1-percentage-point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves willa) increase by $1 billion and the money supply will increase by $5 billion.b) decline by $1 billion and the money supply will decline by $10 billion.c) increase by $1 billion and the money supply will increase by $10 billion.d) increase by $10 billion and the money supply will increase by $100 billion.
Interest paid on excess reserves held at the Fed a) is available to the general public, but not to commercial banks.b) incentivizes financial institutions to hold more reserves and reduce risky lending.c) is determined by the federal funds rate.d) totaled over $1 trillion in 2012.
Which of the following statements is true?a) The Federal Reserve sets the federal funds rate.b) The Federal Reserve sets the target for the federal funds rate, and then uses the reserve ratio to push banks toward that target.c) The Federal Reserve does not set the federal funds rate, but historically has influenced it through the use of its open-market operations.d) The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary monetary policy.
c) The Federal Reserve does not set the federal funds rate, but historically has influenced it through the use of its open-market operations.
Q12. Which of the following best describes the cause-effect chain of an expansionary monetary policy?a) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.b) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.c) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.d) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
d) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be toa) sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.b) buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of interest paid on reserves held at the Fed banks.c) sell government securities, lower reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks.d) sell government securities, raise reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks.
a) sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.

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Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures?a) a tax increase and an increase in the money supplyb) a tax reduction and an increase in the money supplyc) a reduction in government expenditures and a decline in the money supplyd) a tax increase and an increase in the interest rate
The purpose of a restrictive monetary policy is toa) alleviate recessions.b) raise interest rates and restrict the availability of bank credit.c) increase aggregate demand and GDP.d) increase investment spending.
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