Economics Quiz

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Pages: 3

1. If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 2%, the opportunity cost of holding the checking account as money is:
A) zero.
B) 0.02%.
C) 1%.
D) 2%.
2. The money demand curve is _____ because the opportunity cost of holding money is
_____ related to the interest rate.
A) downward-sloping; inversely
B) downward-sloping; directly
C) upward-sloping; inversely
D) upward-sloping; directly
3. A decrease in the demand for money would result from:
A) a decrease in real GDP.
B) an increase in income.
C) an increase in the price level.
D) an increase in nominal GDP.
4. If inflation increases from 2% to 5%, the money demand curve will:
A) remain constant.
B) remain constant, but the quantity of money demanded will decrease.
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D) shift to the right.
5. If the demand for money is $300 billion and the supply of money is $200 billion, then the interest rate will:
A) fall.
B) rise.
C) remain unchanged.
D) be in equilibrium.
6. An increase in the supply of money with no change in demand will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate.
A) increase; fall
B) increase; rise
C) decrease; rise
D) decrease; fall
7. Suppose the Federal Reserve buys Treasury bills. We can expect this transaction to
_____ the money supply, _____ Treasury bill prices, and _____ interest rates.
A) reduce; increase; lower
B) increase; lower; lower
C) increase; raise; lower
D) reduce; reduce; raise
Use the following to answer question 8:
Figure: Changes in the Money Supply
8. (Figure: Changes in the Money Supply) Look at the figure Changes in the Money
Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have
_____ Treasury bills in the open market.
A) sold
B) bought
C) issued new
D) borrowed
9. If the target rate of interest is higher than the equilibrium interest rate, the Federal
Reserve will _____ Treasury bills in the open market, _____ the supply of money,