Exam

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1) Otherthingsbeingequal,bondprices
A) varyproportionallywithinterestrates.
B) areunaffectedbychangesinthedemandformoney.
C) varydirectlywithinterestrates.
D) varyinverselywithinterestrates.
E) areunaffectedbyinterest-ratechanges.
2) Wheniistheannualinterestrate,theformulaforcalculatingthepresentvalueofabondwithafacevalueof R
dollars,receivableinoneyearis
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) Supposethemarketinterestrateisstableat4percentandweseeadeclineinbondprices(andthusarisein
bondyields).Oneexplanationforthisisthat
A) bondpurchasersperceiveareductioninriskinessandthusahigherexpectedpresentvaluefromthose
bonds.
B) thereisnocausalrelationshipbetweenmarketinterestratesandbondprices.
C) bondpurchasersperceiveanincreaseinriskinessandthusalowerexpectedpresentvaluefromthose
bonds.
D) bondissuersarefacinganexcessdemandfortheirbonds.
E) noneoftheabove.
4) Ingeneral,peopleholdcashbalancesforallofthefollowingreasonsEXCEPT:
A) toguardagainsttheuncertaintyofthetimingofreceiptsandpayments.
B) tomakepurchases.
C) tomaximizetheirreturnsoninterest-earningassets.
D) tomeetunforeseenemergencies.
E) asastoreofwealth.
5) Ifthegeneralpricelevelweretoincrease,otherthingsbeingequal,themoneydemandfunctionwould
A) shifttotheright.
B) shifttotheleft.
C) notbeaffected.
D) becomesteeperbutnotshift.
E) shift,butthedirectionoftheshiftcannotbepredicted.

FIGURE28-2
6) RefertoFigure28-2.Iftheinterestrateisi2 ,thesubsequentadjustmentinthemoneymarketisasfollows:
A) excesssupplyofmoneyleadstothepurchaseofbonds,whichinturncausestheinterestratetofalltoi o.
B) excessdemandformoneyleadstoasaleofbonds,whichinturncausestheinterestratetorise.
C) Ms curvewillshifttotheleftastomaintaintheinterestrateati2 .
D) theinterestratewillremainati2 ,becausethemoneymarketisinequilibriumatthisinterestrate.
E) excesssupplyofmoneyleadstothesaleofbonds,whichinturncausestheinterestratetofall.
7) Considermonetaryequilibrium.Ariseinthepricelevel,withnochangeinthesupplyofmoney,will
A) decreaseaggregatedemandbutnotaffectthedemandformoney.
B) increasethedemandformoneyandincreaseaggregateexpenditure.
C) decreasethedemandformoneyanddecreaseaggregatedemand.
D) increasethedemandformoneyanddecreaseaggregateexpenditure.
E) decreasethedemandformoneyandincreaseaggregatedemand.
8) Theeconomysinvestmentdemandfunctiondescribesthe
A) negativerelationshipbetweenthedemandformoneyandtheinterestrate.
B) positiverelationshipbetweendesiredinvestment,therateofinterest,andaggregateexpenditure.
C) negativerelationshipbetweentheinterestrateanddesiredinvestment.
D) positiverelationshipbetweendesiredinvestmentandtherateofinterest.
E) negativerelationshipbetweendesiredinvestmentandaggregateexpenditure.

9) Considerthemonetarytransmissionmechanisminanopeneconomy.Otherthingsbeingequal,adecreasein
thedomesticmoneysupplyleadsto
A) anappreciationofthedomesticcurrency,therebystimulatingnetexportsandreducingaggregate
demand.
B) anappreciationofthedomesticcurrency,therebyinhibitingnetexportsandreducingaggregatedemand.
C) adepreciationofthedomesticcurrency,therebystimulatingnetexportsandraisingaggregatedemand.
D) adepreciationofthedomesticcurrency,therebyinhibitingnetexportsandraisingaggregatedemand.
E) anappreciationofthedomesticcurrency,therebystimulatingnetexportsandraisingaggregatedemand.
10) IftheBankofCanadaweretoincreasethemoneysupply,wewouldexpectalargeincreaseinaggregate
demandifthemoneydemandfunction
A) isrelativelyflatandtheinvestmentdemandfunctionisrelativelysteep.
B) andtheinvestmentdemandfunctionarerelativelyflat.
C) isrelativelysteepandtheinvestmentdemandfunctionisrelativelyflat.
D) remainsthesameandtheinvestmentdemandfunctionissteep.
E) andtheinvestmentdemandfunctionarerelativelysteep.
11) SupposechangesinthemoneysupplyonlyaffectedthepricelevelandneveraffectedrealGDP.Ifthiswerethe
case,itcouldbeviewedasevidence
A) thattheClassicalviewoftheneutralityofmoneyiscorrect.
B) thatthemodernviewoftheneutralityofmoneyiscorrect.
C) supportingboththeClassicalandmodernviewsoftheneutralityofmoney.
D) thatboththeClassicalandmodernviewsoftheneutralityofmoneyareincorrect.
E) thathasnobearingonthetheoriesofeitherClassicalormoderneconomists.
12) Classicaleconomistsbeliefintheneutralityofmoneyledthemtoarguethat
A) achangeinthequantityofmoneywouldchangethepricelevelbutwouldnotchangerelativeprices.
B) achangeinthequantityofmoneywouldnotaffectmoneypricesorrelativeprices.
C) theallocationofresourceswasdeterminedbythequantityofmoneyandnotbytheforcesofsupplyand
demand.
D) relativepriceshavenoroleintherealallocationofresources.
E) absolutepricesweredeterminedintherealpartoftheeconomy.

AnswerKey
Testname:SAMPLEQUESTIONS_CHAP28

1) D
ID:econ1228-1
Diff:1
Topic: 28.1.bondsandpresentvalue
2) E
ID:econ1228-10
Diff:1
Topic: 28.1.bondsandpresentvalue
3) C
ID:econ1228-20
Diff:2
Topic: 28.1.bondsandpresentvalue
4) C
ID:econ1228-30
Diff:2
Topic: 28.2a.reasonsforholdingmoney
5) A
ID:econ1228-40
Diff:2
Topic: 28.2b.themoneydemandfunction
6) A
ID:econ1228-50
Diff:3
Topic: 28.3a.monetaryequilibrium
7) D
ID:econ1228-70
Diff:3
Topic: 28.3b.themonetarytransmissionmechanism
8) C
ID:econ1228-60
Diff:2
Topic: 28.3b.themonetarytransmissionmechanism
9) B
ID:econ1228-80
Diff:3
Topic: 28.3b.themonetarytransmissionmechanism
10) C
ID:econ1228-90
Diff:3
Topic: 28.4a.strengthofmonetaryforces
11) A
ID:econ1228-104
Diff:2
Topic: 28.4b.long-runmoneyneutrality

AnswerKey
Testname:SAMPLEQUESTIONS_CHAP28

12) A
ID:econ1228-100
Diff:2
Topic: 28.4b.long-runmoneyneutrality