Economics Quiz

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Pages: 3
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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. …show more content…
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.
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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
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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,
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