1-) (Figure: Short-Run Determination of the Interest Rate) If the money supply i

Question

1-) (Figure: Short-Run Determination of the Interest Rate) If the money supply is at MS1 and the central bank buys bonds, then in the short run the interest rate will:

    A. increase above r1

     B. remain at r1

     C. decrease to r2

     D. fluctuate randomly.

2-) (Figure: Monetary Policy III) Refer to the information in the figure Monetary Policy III. The central bank should adopt policies to move the economy to:

      A. Y1.

      B. Y2.

      C. Y3.

      D. Y4.

3-) (Figure: Monetary Policy and the ADSRAS Model) Refer to the information in the figure Monetary Policy and the ADSRAS Model. The economy could move from point g to point f as a result of:

      A. an increase in the money supply.

      B. lowering the discount rate.

      C. a decrease in the money supply.

      D. buying government securities in the open market.

4-) (Figure: Equilibrium in the Money Market) Refer to the information in the figure Equilibrium in the Money Market. Equilibrium in this money market will occur at interest rate _______ and quantity of money _______.

      A. r2; Q0.

      B. r0; Q2.

      C. r1; Q1.

      D. r1; Q2.

5-) (Figure: Equilibrium in the Money Market) Refer to the information in the figure Equilibrium in the Money Market. If the interest rate is above the equilibrium rate, there will be an _______ money and the interest rate will _______.

      A. excess demand for; rise

      B. excess supply of; fall

      C. excess demand for; fall

      D. excess supply of; rise

6-) The loanable funds model focuses on the:

      A. demand for money.

      B. supply of funds from lenders.

      C. supply of funds from borrowers and the demand by lenders.

      D. supply of funds from lenders and the demand from borrowers.

7-) The federal funds rate is:

      A. determined in the money market by the supply of and demand for money.

      B. set by Congress.

      C. determined in the real market by the aggregate supply and aggregate demand curves.

      D. the interest rate that banks pay when they borrow directly from the Fed.

8-) People pay a cost for holding wealth in the form of money as opposed to nonmonetary assets such as Treasury bills:

     A. Trure.

     B. False.

9-) (Figure: Equilibrium in the Money Market) Refer to the information in the figure Equilibrium in the Money Market. If the rate of interest is below the equilibrium rate, there will be an _______ money and the interest rate will _______.

      A. excess demand for; rise

      B. excess supply of; fall

      C. excess demand for; fall

      D. excess supply of; rise

Explanation / Answer

1. C. decrease to r2

2. D. Y4

3. C. a decrease in the money supply

4. C. r1; Q1

5. B. excess supply of; fall

6. D. supply of funds from lenders and the demand from borrowers

7. A. determined in the money market by the supply of and demand for money

8. A. True (not sure, could be false if the question is referring to liquidity premium)

9. A. excess demand for; rise

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