ECON 2301 DATE: 12/01/2017 EXAM III 1· The asset demand for money: A. is unrelat

Question

ECON 2301 DATE: 12/01/2017 EXAM III 1· The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B varies inversely with the rate of interest. C. varies inversely with the level of real GDP D. varies directly with the level of nominal GDP. The opportunity cost of holding money: A. 2. is zero because money is not an economic resource. varies inversely with the interest rate. C varies directly with the interest rate. D. varies inversely with the level of economic activity. 3, Prior to the financial crisis a contraction of the money supply increased the interest rate and decreased aggregate demand. increased both the interest rate and aggregate demand. lowered the interest rate and increased aggregate demand. lowered both the interest rate and aggregate demand. A. D. If the amount of money demanded exceeds the amount supplied, the: A. 4. demand-for-money curve will shift to the left. money supply curve will shift to the right. interest rate will rise. interest rate will fall. C D. If the interest rate increases, there will be a(n): A. decrease in the amount of money held as assets. B. decrease in the transactions demand for money. C. increase in the transactions demand for money 5. increase in the amount of money held as assets. In the consolidated balance sheet of the Federal Reserve Banks, loans to commercial A. a liability of the Federal Reserve Banks and commercial banks. B. an asset of the Federal Reserve Banks and commercial banks. C. a liability of the Federal Reserve Banks and an asset for commercial banks D) an asset of the Federal Reserve Banks and a liability for commercial banks. 6. banks are:

Explanation / Answer

1. Demand for money decreases as the interest rate increases because it becomes more profitable to save the money in the bank rather than spending it. Therefore, demand for money decrease as interest rate increases and vice versa.

OPTION B

2. The opportunity cost of holding money is the interest foregone by not saving it. Therefore it varies directly with the interest rate.

OPTION C

3. OPTION C

4. Increase in money demand will have to be decreased by increasing the interest rate.

OPTION C

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