Question 1

Which of the following would not be considered a benefit of holding real money balances?

Accepted Answer

A)  interest income on money balances
B)  convenience
C)  increasing the transactions costs of exchanges
D)  the ability to make payments when due

Question 2

The __________ suggests that individuals will demand to hold money in anticipation of the need to make payments.

Accepted Answer

A)  speculative demand for money
B)  precautionary motive
C)  transaction motive
D)  liquidity preference theory

Question 3

Ceteris paribus, according to Keynes, the speculative motive for holding money shows that the

Accepted Answer

A)  demand for money and the interest rate are directly related.
B)  quantity demanded of real money balances and the interest rate are inversely related.
C)  quantity demanded of money is directly related to income.
D)  demand for money is directly related to income.

Question 4

What percentage of currency do some experts estimate is held outside of the United States?

Accepted Answer

A)  30-40 percent
B)  40-50 percent
C)  50-60 percent
D)  60-70 percent

Question 5

What percentage of United States currency is estimated to be held outside the United States?

Accepted Answer

A)  less than10 percent
B)  less than 25 percent
C)  over 50 percent
D)  more than 80 percent

Question 6

Ceteris paribus, if the price level increases by 20 percent,

Accepted Answer

A)  both the nominal demand for money and demand for real balances increases by 20 percent.
B)  the nominal demand for money decreases by 20 percent and the demand for real balances decreases.
C)  the nominal demand for money increases by 20 percent and the demand for real balances remains the same.
D)  both the nominal demand for money and the demand for real balances remains the same.

Question 7

The supply of real money balances increases when

Accepted Answer

A)  the Fed sells securities in the open market.
B)  discount loans are paid off at Federal Reserve District Banks.
C)  the Fed raises the required reserve ratio.
D)  the overall price level falls.

Question 8

Which of the following statements is true regarding the relationship between the demand and supply of real money balances?

Accepted Answer

A)  An increase in the money supply is likely to lead to a decrease in interest rates; a decrease in interest rates is likely to lead to an increase in real income; an increase is real income is likely to lead to an increase in the demand for real money balances.
B)  An increase in the demand for real money balances is likely to lead to an increase in the supply of real money balances.
C)  Increases in the supply of real money balances are just as likely to lead to a decrease in the demand for real money balances, as they are to lead to an increase in the demand for real money balances.
D)  The demand and supply of real money balances are completely independent.

Question 9

The relative interest rate differential between nonmonetary and monetary assets is considered which of the following?

Accepted Answer

A)  real income
B)  real money balances
C)  liquidity preference
D)  the opportunity cost of holding money

Question 10

Ceteris paribus, when the Fed decreases the supply of reserves, which of the following happens?

Accepted Answer

A)  There is a movement downward on the supply curve for real money balances.
B)  There is a movement upward on the supply curve for real money balances.
C)  The supply curve of real money balances shifts to the right.
D)  The supply curve of real money balances shifts to the left.

Question 11

According to monetarism, changes in the money supply are the most important factor in determining changes in which of the following variables?

Accepted Answer

A)  nominal GDP
B)  real GDP
C)  the price level
D)  the interest rate

Question 12

Real income is which of the following?

Accepted Answer

A)  nominal income adjusted for changes in prices
B)  nominal income multiplied by a price index
C)  a price index divided by nominal income
D)  a price index multiplied by nominal income

Question 13

The immediate response to an increase in the growth rate of the nominal money supply is which of the following?

Accepted Answer

A)  a perfectly proportional decrease in the price level
B)  a perfectly proportional increase in the price level
C)  a less than proportional decrease in the price level
D)  a less than proportional increase in the price level

Question 14

-Refer to Figure. Which of the following could cause the phenomena pictured in the diagram?

Accepted Answer

A)  an increase in payments technology
B)  an increase in expected inflation
C)  an increase in real income
D)  an increase in the liquidity of other assets

Question 15

Many near money substitutes are created. The demand for money will

Accepted Answer

A)  increase.
B)  decrease.
C)  stay the same.
D)  It is impossible to tell.

Question 16

A real money balance is which of the following?

Accepted Answer

A)  a deposit over $100
B)  the money supply divided by the price level
C)  the balance in M1
D)  the money supply divided by the interest rate

Question 17

Ceteris paribus, when real income increases, which of the following happens?

Accepted Answer

A)  The demand curve for money shifts to the right.
B)  The demand curve for money shifts to the left.
C)  There is a movement downward on the demand curve for money.
D)  There is a movement upward on the demand curve for money.

Question 18

-Refer to Figure . Which of the following may have caused the scenario described in the figure?

Accepted Answer

A)  The Fed increased the required reserve ratio.
B)  The Fed raised the discount rate.
C)  The Fed purchased Treasury securities.
D)  The Fed announced a higher target rate for the Fed funds rate.

Question 19

ATM machines become more accessible. The supply of money will

Accepted Answer

A)  increase.
B)  decrease.
C)  stay the same.
D)  It is impossible to tell.

Question 20

The __________ suggests that individuals will demand to hold money in anticipation of unforeseen opportunities or threats.

Accepted Answer

A)  speculative demand for money
B)  precautionary motive
C)  transaction motive
D)  liquidity preference theory

Exam 20: The Demand for Real Money Balances and Market Equilibrium

A real money balance is which of the following?

Correct AnswerverifiedShow Answer

-Refer to Figure. Which of the following could cause the phenomena pictured in the diagram?

Correct AnswerverifiedShow Answer

Many near money substitutes are created. The demand for money will

Correct AnswerverifiedShow Answer

Ceteris paribus, according to Keynes, the speculative motive for holding money shows that the

Correct AnswerverifiedShow Answer

Real income is which of the following?

Correct AnswerverifiedShow Answer

The immediate response to an increase in the growth rate of the nominal money supply is which of the following?

Correct AnswerverifiedShow Answer

The relative interest rate differential between nonmonetary and monetary assets is considered which of the following?

Correct AnswerverifiedShow Answer

Ceteris paribus, when the Fed decreases the supply of reserves, which of the following happens?

Correct AnswerverifiedShow Answer

Which of the following would not be considered a benefit of holding real money balances?

Correct AnswerverifiedShow Answer

-Refer to Figure . Which of the following may have caused the scenario described in the figure?

Correct AnswerverifiedShow Answer

ATM machines become more accessible. The supply of money will

Correct AnswerverifiedShow Answer

Which of the following statements is true regarding the relationship between the demand and supply of real money balances?

Correct AnswerverifiedShow Answer

According to monetarism, changes in the money supply are the most important factor in determining changes in which of the following variables?

Correct AnswerverifiedShow Answer

The __________ suggests that individuals will demand to hold money in anticipation of unforeseen opportunities or threats.

Correct AnswerverifiedShow Answer

Ceteris paribus, if the price level increases by 20 percent,

Correct AnswerverifiedShow Answer

The __________ suggests that individuals will demand to hold money in anticipation of the need to make payments.

Correct AnswerverifiedShow Answer

What percentage of currency do some experts estimate is held outside of the United States?

Correct AnswerverifiedShow Answer

Ceteris paribus, when real income increases, which of the following happens?

Correct AnswerverifiedShow Answer

The supply of real money balances increases when

Correct AnswerverifiedShow Answer

What percentage of United States currency is estimated to be held outside the United States?

Correct AnswerverifiedShow Answer

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