Question 1

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:

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 2

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

Accepted Answer

When the interest rate decreases, holding money as an asset becomes more attractive since the opportunity cost of holding money decreases. Therefore, people will increase the amount of money they hold as an asset. This is known as the asset demand for money. The transactions demand for money, which is the demand for money to make purchases, remains unaffected by changes in the interest rate.

Question 3

A consumer holds money to meet spending needs. This would be an example of the:

Accepted Answer

The transactions demand for money refers to the demand for money to carry out day-to-day transactions and meet spending needs. Therefore, a consumer holding money to meet spending needs is an example of the transactions demand for money. The use of money as a measure of value refers to the function of money to serve as a common unit of measurement of the value of goods and services. The use of money as legal tender refers to the function of money as a medium of exchange that is approved by the government. The asset demand for money refers to the demand for money as a store of value or as an investment, rather than for transaction purposes.

Question 4

The transactions demand for money will shift to the:

Accepted Answer

The transactions demand for money shifts to the left when nominal GDP decreases because less money is needed for transactions in the economy.

Question 5

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is in equilibrium at the 6 percent rate of interest. If the money supply then decreases as shown, the transaction demand for money will change by:

Accepted Answer

The answer of  Refer to the graph above, in...

Question 6

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:

Accepted Answer

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

Question 7

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

Accepted Answer

The transactions demand for money curve represents the demand for money for everyday transactions, such as buying goods and services. This demand is related to the level of income in the economy, and is therefore a function of changes in nominal GDP. The graph represented by Line 2 shows an upward sloping curve, which is consistent with the idea that as income increases, so does the demand for money for transactions purposes. Therefore, Line 2 is the best choice for illustrating the transactions demand for money curve.

Question 8

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:

Accepted Answer

If money is spent four times a year, it means the velocity of money is 4. Therefore, the quantity of money people wish to hold for transactions purposes is 1/4 of nominal GDP, or 25 percent of nominal GDP.

Question 9

Refer to the table above. 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:

Accepted Answer

The answer of  Refer to the table above. Suppose...

Question 10

Which of the following varies directly with the interest rate?

Accepted Answer

The opportunity cost of holding money increases with the interest rate because higher interest rates mean higher returns on investments that are forgone by holding money.

Question 11

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

Accepted Answer

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

Question 12

An increase in nominal GDP will:

Accepted Answer

An increase in nominal GDP means there is more economic activity and more transactions taking place, which leads to an increase in the demand for money to facilitate those transactions. As a result, both the transactions demand and the total demand for money will increase.

Question 13

Refer to the table above. 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 $2000 billion, the equilibrium interest rate is:

Accepted Answer

The answer of  Refer to the table above. Suppose...

Question 14

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then S_m₂ will shift to:

Accepted Answer

The answer of  Refer to the graph above, in...

Question 15

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

Accepted Answer

The transactions demand for money is primarily influenced by the price level, level of national income, and frequency of wage and salary payments, as these factors affect the need for money for everyday transactions. The interest rate, however, is more related to the speculative and precautionary demand for money.

Question 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

The asset demand for money arises because money serves as a store of value, allowing individuals to hold wealth in liquid form for future use.

Question 18

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. If the interest rate was 4 percent, the asset demand for money would be:

Accepted Answer

The answer of  Refer to the graph above, in...

Question 19

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is initially in equilibrium at a 6 percent rate of interest. If the supply of money increases as shown_, then the asset demand for money will increase by:

Accepted Answer

The answer of  Refer to the graph above, in...

Question 20

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:

Accepted Answer

The wealthy executive holding money to invest in the stock market reflects the asset demand for money, as holding money is seen as an asset that can be used to purchase other assets, such as stocks. Transactions demand for money is the demand for money to facilitate day-to-day transactions, while the creation of fiat money and the use of money as a medium of exchange are not relevant to this scenario.

Quiz 16: Interest Rates and Monetary Policy

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

A consumer holds money to meet spending needs. This would be an example of the:

The transactions demand for money will shift to the:

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:

Which line in the graph above would best illustrate the transactions demand for 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:

Refer to the table above. 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:

Which of the following varies directly with the interest rate?

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

An increase in nominal GDP will:

Refer to the table above. 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 $2000 billion, the equilibrium interest rate is:

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then S_m₂ will shift to:

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

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

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

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. If the interest rate was 4 percent, the asset demand for money would 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:

Quiz 16: Interest Rates and Monetary Policy

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

A consumer holds money to meet spending needs. This would be an example of the:

The transactions demand for money will shift to the:

Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The market is in equilibrium at the 6 percent rate of interest. If the money supply then decreases as shown, the transaction demand for money will change by:

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:

Which line in the graph above would best illustrate the transactions demand for 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:

Refer to the table above. 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:

Which of the following varies directly with the interest rate?

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

An increase in nominal GDP will:

Refer to the table above. 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 $2000 billion, the equilibrium interest rate is:

Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then Sm2 will shift to:

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

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

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

Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would 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:

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then S_m₂ will shift to:

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. If the interest rate was 4 percent, the asset demand for money would be: