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The transactions demand for money is most closely related to money functioning as a

medium of exchange

The asset demand for money is most closely related to money functioning as a

store of value

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

nominal GDP increases and the interest rate increases

It is costly to hold money because:

in doing so one sacrifices interest income

If the quantity of money demanded exceeds the quantity supplied:

the interest rate will rise

The equilibrium rate of interest in the market for money is determined by the intersection of the:

supply of money curve and the total demand curve

Refer to the diagram on the right . of the market for money. The downward slope of the money demand curve Dm is best explained in terms of the:

asset demand for money

9. Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of i3, is not sustainable because the:

demand for bonds in the bond market will rise and the interest rate will fall

Refer to the above diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if:

nominal GDP decreased

Refer to the market on the right. for money diagrams. The asset demand for money is shown by:

D2

12. Refer to the above market for money diagrams. Curve D1 represents the:

transactions demand for money

13. Refer to the above market for money diagrams. The total demand for money is shown by:

D3

14. Refer to the above market for money diagrams. If the Federal Reserve increased the stock of money, the:

S curve would shift rightward and the equilibrium interest rate would fall

15. The securities held as assets by the Federal Reserve Banks consist mainly of:

Treasury bills and Treasury bonds.

16. The four main tools of monetary policy are:

the discount rate, the reserve ratio, the term auction facility, and open-market operations.

17. The Fed can change the money supply by:

changing bank reserves through the sale of purchase of govmt securities; changing the quantities of required and excess reserves by altering the legal reserve ratio; changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks.

18. Open-market operations refer to:

the purchase or sale of government securities by the Fed

19. If the Fed were to increase the legal reserve ratio, we would expect:

higher interest rates, a contracted GDP, and appreciation of the dollar

20. The Federal Reserve System regulates the money supply primarily by:

altering the reserves of commercial banks, largely through sales and purchases of government bonds.

21. Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply:

expands and commerical bank reserves increase

22. An increase in the reserve ratio:

decreases the size of the monetary multiplier

23. In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the:

long-run

24. If government uses fiscal policy to restrain cost-push inflation, we can expect:

the unemployment rate to rise

25. If government uses its stabilization policies to maintain full employment under conditions of cost-push inflation:

an inflationary spiral is likely to occur

26. The basic problem portrayed by the traditional Phillips Curve is:

that a level of aggregate demand sufficiently high to result in full employment may also cause inflation

27. "International trade" refers to:

purchasing or selling currently produced goods or services across an international border

28. If a U.S. importer can purchase 10,000 pounds for $20,000, the rate of exchange is:

$2=1 pound in the US

29. In international financial transactions, what are the only two things that individuals and firms can exchange?

preexisting assest and currently produced goods and services

30. Which of the following would call for outpayments from the United States?

US purchases assets abroad

31. The financial account balance is a nation's:

sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners

32. Which of the following would contribute to a United States balance of payments deficit?

United States tourists travel in large numbers to Europe

33. It may be misleading to label a trade deficit as unfavorable or adverse because:

a nation's consumers benefit from a trade deficit during the period it occurs.

34. Which one of the following, other things equal, will directly alter the United States balance of trade?

a decrease in US goods exports

35. In considering yen and dollars, when the dollar rate of exchange for the yen rises:

the yen rate of exchange for the dollar will fall

36. In considering euros and dollars, the rates of exchange for the euro and the dollar:

are inversely related

37. If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:

Americans will buy more Mexican goods and services

38. Depreciation of the dollar will:

increase the prices of US imports, but decrease the prices to foreigners of US exports

39. Which of the following will generate a demand for country X's currency in the foreign exchange market?

the desire of foreigners to buy stocks and bonds of firms in country X

40. Refer to the diagram on the right, At the equilibrium exchange rate: [The following diagram is a flexible exchange market for foreign currency]

$1.25 euros will buy $1. ($1=1/0.80=1.25 euro)

41. Refer to the above diagram. At the price $.80 for 1 euro:

the quantity of euros demanded equals the quantity supplied

42. Refer to the above diagram. Other things equal, a rightward shift of the demand curve would:

depreciate the dollar

43. Refer to the above diagram. Other things equal, a leftward shift of the demand curve would:

reduce the equilbrium quantity of euros.

44. Refer to the above diagram. Other things equal, a leftward shift of the supply curve would:

appreciate the euro

45. Refer to the above diagram. Other things equal, a rightward shift of the supply curve would:

appreciate the dollar

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demanded for money can be found by:

horizontally adding the transactions and the asset demand for money

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