Download Sample Questions_Chap 28

Exam
Name___________________________________
1) Other things being equal, bond prices
A) vary proportionally with interest rates.
B) are unaffected by changes in the demand for money.
C) vary directly with interest rates.
D) vary inversely with interest rates.
E) are unaffected by interest-rate changes.
2) When i is the annual interest rate, the formula for calculating the present value of a bond with a face value of R
dollars, receivable in one year is
C) PV = R (1+i)
D) PV = R/i
E) PV = R/(1+i)
A) PV = i(R+i)
B) PV = (1+i)/R
3) Suppose the market interest rate is stable at 4 percent and we see a decline in bond prices (and thus a rise in
bond yields). One explanation for this is that
A) bond purchasers perceive a reduction in riskiness and thus a higher expected present value from those
bonds.
B) there is no causal relationship between market interest rates and bond prices.
C) bond purchasers perceive an increase in riskiness and thus a lower expected present value from those
bonds.
D) bond issuers are facing an excess demand for their bonds.
E) none of the above.
4) In general, people hold cash balances for all of the following reasons EXCEPT:
A) to guard against the uncertainty of the timing of receipts and payments.
B) to make purchases.
C) to maximize their returns on interest-earning assets.
D) to meet unforeseen emergencies.
E) as a store of wealth.
5) If the general price level were to increase, other things being equal, the money demand function would
A) shift to the right.
B) shift to the left.
C) not be affected.
D) become steeper but not shift.
E) shift, but the direction of the shift cannot be predicted.
1
FIGURE 28-2
6) Refer to Figure 28-2. If the interest rate is i2 , the subsequent adjustment in the money market is as follows:
A) excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall to i o.
B) excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise.
C) Ms curve will shift to the left as to maintain the interest rate at i2 .
D) the interest rate will remain at i2 , because the money market is in equilibrium at this interest rate.
E) excess supply of money leads to the sale of bonds, which in turn causes the interest rate to fall.
7) Consider monetary equilibrium. A rise in the price level, with no change in the supply of money, will
A) decrease aggregate demand but not affect the demand for money.
B) increase the demand for money and increase aggregate expenditure.
C) decrease the demand for money and decrease aggregate demand.
D) increase the demand for money and decrease aggregate expenditure.
E) decrease the demand for money and increase aggregate demand.
8) The economyʹs investment demand function describes the
A) negative relationship between the demand for money and the interest rate.
B) positive relationship between desired investment, the rate of interest, and aggregate expenditure.
C) negative relationship between the interest rate and desired investment.
D) positive relationship between desired investment and the rate of interest.
E) negative relationship between desired investment and aggregate expenditure.
2
9) Consider the monetary transmission mechanism in an open economy. Other things being equal, a decrease in
the domestic money supply leads to
A) an appreciation of the domestic currency, thereby stimulating net exports and reducing aggregate
demand.
B) an appreciation of the domestic currency, thereby inhibiting net exports and reducing aggregate demand.
C) a depreciation of the domestic currency, thereby stimulating net exports and raising aggregate demand.
D) a depreciation of the domestic currency, thereby inhibiting net exports and raising aggregate demand.
E) an appreciation of the domestic currency, thereby stimulating net exports and raising aggregate demand.
10) If the Bank of Canada were to increase the money supply, we would expect a large increase in aggregate
demand if the money demand function
A) is relatively flat and the investment demand function is relatively steep.
B) and the investment demand function are relatively flat.
C) is relatively steep and the investment demand function is relatively flat.
D) remains the same and the investment demand function is steep.
E) and the investment demand function are relatively steep.
11) Suppose changes in the money supply only affected the price level and never affected real GDP. If this were the
case, it could be viewed as evidence
A) that the Classical view of the neutrality of money is correct.
B) that the modern view of the neutrality of money is correct.
C) supporting both the Classical and modern views of the neutrality of money.
D) that both the Classical and modern views of the neutrality of money are incorrect.
E) that has no bearing on the theories of either Classical or modern economists.
12) Classical economistsʹ belief in the ʺneutrality of moneyʺ led them to argue that
A) a change in the quantity of money would change the price level but would not change relative prices.
B) a change in the quantity of money would not affect money prices or relative prices.
C) the allocation of resources was determined by the quantity of money and not by the forces of supply and
demand.
D) relative prices have no role in the real allocation of resources.
E) absolute prices were determined in the real part of the economy.
3
Answer Key
Testname: SAMPLE QUESTIONS_CHAP 28
1) D
ID: econ12 28-1
Diff: 1
Topic: 28.1. bonds and present value
2) E
ID: econ12 28-10
Diff: 1
Topic: 28.1. bonds and present value
3) C
ID: econ12 28-20
Diff: 2
Topic: 28.1. bonds and present value
4) C
ID: econ12 28-30
Diff: 2
Topic: 28.2a. reasons for holding money
5) A
ID: econ12 28-40
Diff: 2
Topic: 28.2b. the money demand function
6) A
ID: econ12 28-50
Diff: 3
Topic: 28.3a. monetary equilibrium
7) D
ID: econ12 28-70
Diff: 3
Topic: 28.3b. the monetary transmission mechanism
8) C
ID: econ12 28-60
Diff: 2
Topic: 28.3b. the monetary transmission mechanism
9) B
ID: econ12 28-80
Diff: 3
Topic: 28.3b. the monetary transmission mechanism
10) C
ID: econ12 28-90
Diff: 3
Topic: 28.4a. strength of monetary forces
11) A
ID: econ12 28-104
Diff: 2
Topic: 28.4b. long-run money neutrality
4
Answer Key
Testname: SAMPLE QUESTIONS_CHAP 28
12) A
ID: econ12 28-100
Diff: 2
Topic: 28.4b. long-run money neutrality
5