Question 1

A) $75.
B) $125.
C) $200.
D) $325.

Accepted Answer

The answer of 
A) $75.
B) $125.
C) $200.
D) $325....

Question 2

A) $s _ { m 3 }$ and the interest rate will be 4 percent.
B) $s _ { m 3 }$ and the interest rate will be 8 percent.
C) $S _ { m 1 }$ and the interest rate will be 8 percent.
D) $S _ { m 1 }$ and the interest rate will be 4 percent.

Accepted Answer

The answer of 
A) $s _ { m 3 }$...

Question 3

A decrease in the interest rate will cause a(n)
A) increase in the transactions demand for money.
B) decrease in the transactions demand for money.
C) decrease in the amount of money held as an asset.
D) increase in the amount of money held as an asset.

Accepted Answer

A decrease in the interest rate causes the opportunity cost of holding money to decrease, leading individuals to hold more money as an asset. This is because keeping money in interest-bearing accounts becomes less attractive. Therefore, there will be an increase in the amount of money held as an asset.

Question 4

A) B
B) E
C) F
D) I

Accepted Answer

The answer of 
A) B
B) E
C) F
D) I...

Question 5

Which line in the graph would best illustrate the asset demand for money curve?
A) Line 1
B) Line 2
C) Line 3
D) Line 4

Accepted Answer

The answer of  Which line in the graph would...

Question 6

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be
A) $200 billion.
B) $400 billion.
C) $800 billion.
D) $3,200 billion.

Accepted Answer

The quantity of money demanded for transactions purposes can be calculated using the formula for the velocity of money: V = (P*Y)/M, where V is the velocity of money, P is the price level, Y is the real GDP, and M is the quantity of money. In this case, we are given that the nominal GDP (P*Y) is $800 billion and the velocity of money (V) is 4, meaning each dollar is spent four times. Rearranging the formula to solve for M gives us M = (P*Y)/V = $800 billion / 4 = $200 billion.

Question 7

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the
A) transactions demand for money.
B) asset demand for money.
C) creation of ﬁat money.
D) use of money as a medium of exchange.

Accepted Answer

The wealthy executive is holding money as an asset in anticipation of a future investment opportunity, which is an example of the asset demand for money. The transactions demand for money refers to the demand for money to be used in day-to-day transactions. The creation of fiat money refers to the government's ability to create money without it being backed by a physical commodity. The use of money as a medium of exchange refers to money being used to facilitate transactions.

Question 8

$$\begin{array} { | c | c | } 
\hline \text { Interest Rate } & \text { Asset Demand for Money (Billions) } \
\hline 7 \% & \$ 200 \
\hline 6 & 300 \
\hline 5 & 400 \
\hline 4 & 500 \
\hline
\end{array}$$ Refer to the table. Suppose that the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to
A) rise to 7 percent.
B) rise to 6 percent.
C) fall to 4 percent.
D) fall to 5 percent.

Accepted Answer

The answer of \[\begin{array} { | c | c |...

Question 9

The transactions demand for money is least likely to be a function of the
A) price level.
B) interest rate.
C) level of national income.
D) frequency of wage and salary payments.

Accepted Answer

The transactions demand for money is primarily influenced by the price level, national income, and frequency of payments, rather than the interest rate, which affects the speculative demand for money.

Question 10

An increase in nominal GDP will
A) increase the transactions demand and the total demand for money.
B) decrease the transactions demand and the total demand for money.
C) increase the transactions demand for money but decrease the total demand for money.
D) decrease the transactions demand for money but increase the total demand for money.

Accepted Answer

An increase in nominal GDP means that there is an increase in economic activity and more goods and services are being exchanged, which increases the transactions demand for money. Additionally, as nominal GDP increases, there is an increase in income and wealth, which leads to an increase in the total demand for money for savings and investment purposes. Therefore, option A is the correct choice.

Question 11

Which line in the graph would best illustrate the supply of money curve?
A) Line 4
B) Line 3
C) Line 2
D) Line 1

Accepted Answer

Line 2 represents the increase in the supply of money, which is the movement of the supply curve to the right. This is because the vertical axis represents the price level, and as the central bank increases the supply of money, prices increase as well. Therefore, line 2 represents the shift in the supply curve.

Question 12

If the dollars held for transactions purposes are, on the average, spent four times a year for ﬁnal goods and services, then the quantity of money people will wish to hold for transactions purposes is equal to
A) 4 percent of nominal GDP.
B) 25 percent of nominal GDP.
C) nominal GDP multiplied times 4.
D) nominal GDP divided by 25.

Accepted Answer

The quantity of money people will wish to hold for transactions purposes is equal to the amount of money needed to cover transactions during a certain period of time. If the dollars held are spent on average four times a year, then the quantity of money people will want to hold for transactions is 1/4th of the total amount spent in the economy during that period. Therefore, it is equal to 25 percent of nominal GDP.

Question 13

Which of the following varies directly with the interest rate?
A) the opportunity cost of holding money
B) the transactions demand for money
C) the asset demand for money
D) the level of investment

Accepted Answer

The opportunity cost of holding money increases with higher interest rates because individuals forego the interest they could earn by investing that money.

Question 14

$$\begin{array} { | c | c | } 
\hline \text { Interest Rate } & \text { Asset Demand for Money (Billions) } \
\hline 7 \% & \$ 200 \
\hline 6 & 300 \
\hline 5 & 400 \
\hline 4 & 500 \
\hline
\end{array}$$ Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2,000 billion, the equilibrium interest rate is
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.

Accepted Answer

The transactions demand for money is 20% of $2,000 billion, which is $400 billion. The total demand for money is the sum of transactions demand ($400 billion) and asset demand. At 5%, the asset demand is $400 billion, making the total demand $800 billion, which equals the money supply. Thus, the equilibrium interest rate is 5%.

Question 15

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that
A) the asset demand for money is $3,200 billion.
B) the total demand for money is $4,800 billion.
C) on average, each dollar will be spent ﬁve times a year.
D) the supply of money needs to be increased to meet the demand.

Accepted Answer

The velocity of money is calculated as nominal GDP divided by the money supply. Here, $4,000 billion / $800 billion = 5, indicating that on average, each dollar is spent five times a year.

Question 16

A) $125.
B) $175.
C) $200.
D) $225.

Accepted Answer

The code in the question appears to be a product code, and the last part of the code, "TB8601_00," likely refers to the specific model being sold. Therefore, the price must be determined based on other factors such as market research, retailer pricing, and current promotions. Without additional information, it is impossible to determine an exact price, but option C is the most reasonable estimate based on the price range of comparable products.

Question 17

A) $175.
B) $125.
C) $75.
D) $0.

Accepted Answer

The answer of 
A) $175.
B) $125.
C) $75.
D) $0....

Question 18

There is an asset demand for money primarily because of which function of money?
A) legal tender
B) store of value
C) measure of value
D) medium of exchange

Accepted Answer

The asset demand for money is primarily because money serves as a store of value. This function allows individuals to save and defer consumption until a later time, treating money as an asset.

Question 19

A) C
B) D
C) G
D) I

Accepted Answer

The answer of 
A) C
B) D
C) G
D) I...

Question 20

Which line in the graph would best illustrate the transactions demand for money curve?
A) Line 1
B) Line 2
C) Line 3
D) Line 4

Accepted Answer

The answer of  Which line in the graph would...

Quiz 16: Interest Rates and Monetary Policy

$A) s _ { m 3 } and the interest rate will be 4 percent. B) s _ { m 3 } and the interest rate will be 8 percent. C) S _ { m 1 } and the interest rate will be 8 percent. D) S _ { m 1 } and the interest rate will be 4 percent.$

A decrease in the interest rate will cause a(n)

Which line in the graph would best illustrate the asset demand for money curve?

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

The transactions demand for money is least likely to be a function of the

An increase in nominal GDP will

Which line in the graph would best illustrate the supply of money curve?

If the dollars held for transactions purposes are, on the average, spent four times a year for ﬁnal goods and services, then the quantity of money people will wish to hold for transactions purposes is equal to

Which of the following varies directly with the interest rate?

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that

There is an asset demand for money primarily because of which function of money?

Which line in the graph would best illustrate the transactions demand for money curve?