Deck 1: Money, Financial Markets, Instruments, and Market Makers

Question 1

The price at which a market maker is willing to sell securities is called the

A) asked price.
B) bid price.
C) equilibrium price.
D) neutral price.

Answer 1

asked price.

Question 2

Which of the following would not be traded in a money market?

A) Treasury bills
B) mortgage notes
C) commercial paper
D) negotiable certificates of deposit

Answer 2

mortgage notes

Question 3

Assume you bought a one-year Treasury bill in June, 2010 for $9,789 that can be redeemed for $10,000 in June, 2011. What is the yield on this purchase?

A) $211.00
B) 2.11%
C) 2.16%
D) $46.39

Answer 3

2.16%

Question 4

-Which of the following statements best describes Figure 3-1?

A) As the Fed increases reserves and with them the money supply, the interest rate falls.
B) As the Fed decreases available reserves and decreases money supply, the interest rate falls.
C) As consumer incomes rise, consumers are more willing to spend money. As a result, they increase their demand for money and the interest rate falls.
D) As the Fed increases the required reserve ratio, the money supply increases and the interest rate falls.

Question 5

-The decrease in the interest rate shown in Figure 3-1 could have been caused by

A) an increase in consumer income.
B) the Fed increasing the money supply.
C) the Congress decreasing taxes.
D) an increase in the required reserve ratio.

Question 6

-Which of the following statements best describes Figure 3-2?

A) As the Fed increases reserves and with them the money supply, the interest rate tends to increase.
B) As the Fed decreases available reserves and decreases the money supply, the interest rate tends to increase.
C) As consumer incomes fall, consumers become more frugal. As a result they increase their demand for money and the interest rate increases.
D) An increase in household incomes is likely to increase the demand for money. As money demand increases, the interest rate rises.

Question 7

-What may have caused the changes illustrated in Figure 3-2?

A) A decrease in the required reserve ratio
B) A decrease in interest
C) An increase in consumer incomes
D) An increase in interest rates

Question 8

-In Figure 3-2,

A) an increase in interest rates causes money demand to increase.
B) an increase in money demand causes interest rates to increase.
C) a decrease in the money supply causes the interest rate to increase.
D) an increase in the interest rate causes money supply to increase.