1. Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days
ID: 1112537 • Letter: 1
Question
1. Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If your entire earnings are deposited in your checking account at the beginning of the month, then your average quantity of money demanded is
a. $4,800.
b. $1,200.
c. $2,400.
d. $160
2. Suppose you earn $4,800 a month and spend exactly $160 in each of the 30 days. If you deposit $1, 600 into your checking account on the first day, eleventh day, and twenty-first day of the month, then your average quantity of money demanded is
a. $2,400.
b. $4,800.
c. $800.
d. $1,200.
3. Suppose present interest rates are relatively high. Financial investors will hold
a. larger speculative balances because they do not expect bond prices to fall further.
b. smaller speculative balances because they do not expect bond prices to fall further.
c. smaller speculative balances because they expect bond prices to fall further.
d. larger speculative balances because they expect bond prices to fall further.
4. Suppose the Fed announces that it expects interest rates to fall in the next quarter. What happens to the demand for money today?
a. The precautionary demand for money goes up.
b. The speculative demand for money goes up.
c. The speculative demand for money goes down
d. The transaction demand for money goes down
5. All else constant, an increase in the supply of money will lead to
a. a decrease in the equilibrium quantity of money and an increase in the equilibrium price of bonds
b. an increase in the equilibrium quantity of money and an increase in the equilibrium price of bonds.
c. a decrease in the equilibrium quantity of money and a decrease in the equilibrium price of bonds.
d. an increase in the equilibrium quantity of money and a decrease in the equilibrium price of bonds.
Explanation / Answer
1. The right answer is c. $2400.
If the total income is $4800 and an equal amount of $160 is demanded every day from the checking account, the average quantity of money demanded is $4,800/2 = $2,400.
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