Question 1

If the prices of bonds go up, the interest rates will fall and the quantity of investment demanded will rise.

Accepted Answer

When bond prices go up, the yield on the bond (or the interest rate) goes down. This is because investors are willing to pay more for a fixed income stream, which lowers the yield. Lower interest rates make borrowing cheaper for businesses and individuals, increasing the demand for investment, which includes bonds.

Question 2

As a result of an increase in the money supply, the aggregate demand will shift to the left.

Accepted Answer

An increase in the money supply will shift the aggregate demand curve to the right since people have more money to spend.

Question 3

The Fed could conduct an open market purchase to eliminate an inflationary gap.

Accepted Answer

The answer of The Fed could conduct an open market...

Question 4

The Fed could conduct an open market sale to eliminate an inflationary gap.

Accepted Answer

When there is an inflationary gap (total spending in the economy exceeds the economy's capacity to produce goods and services), the Federal Reserve (Fed) can decrease the money supply and reduce spending by conducting an open market sale of government securities. This will increase interest rates, decrease borrowing, and lower spending, ultimately helping to close the inflationary gap.

Question 5

The demand curve for money shows the quantity of money demanded at each interest rate, all other things unchanged.

Accepted Answer

The demand curve for money represents the relationship between the quantity of money demanded and the interest rate, holding all other factors constant.

Question 6

An increase in the money supply will lower the equilibrium rate of interest.

Accepted Answer

When there is an increase in the money supply, there is more money available for borrowing and lending, which puts downward pressure on the interest rate. This is because lenders have more competition and borrowers have more options for finding lower interest rates. As a result, the equilibrium rate of interest will decrease.

Question 7

A rise in bond prices would cause the price of a dollar to rise.

Accepted Answer

A rise in bond prices means that interest rates have decreased, increasing the supply of dollars and causing the price of a dollar to decrease, not rise.

Question 8

Explain the link between U.S. interest rates, the dollar exchange rate, and net exports. Explain why high interest rates in the United States cause net exports to fall and low interest rates cause net exports to rise?

Accepted Answer

The answer of Explain the link between U.S. interest rates,...

Question 9

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate a recessionary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

Accepted Answer

The answer of Using a money market diagram and a...

Question 10

Why is there a negative relationship between the interest rate and the quantity of money demanded?

Accepted Answer

The answer of Why is there a negative relationship between...

Question 11

When the Fed sells government bonds in the open market, interest rates will rise.

Accepted Answer

When the Fed sells government bonds, it reduces the amount of money in the economy, which leads to a decrease in the supply of money. This decrease in the supply of money causes interest rates to rise.

Question 12

Explain the relationships among the face value of a bond, the price of a bond, and the interest rate paid on the bond.

Accepted Answer

The answer of Explain the relationships among the face value...

Question 13

The transactions demand for money is the money households and firms hold in order to pay for goods and services they buy.

Accepted Answer

The statement correctly defines transactions demand for money.

Question 14

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate an inflationary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

Accepted Answer