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If a $1,000 bond pays $100 per year, the interest rate on the bond equals:
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| $1,000 / $100 = $10 |
| $100 |
| $1,000 * $100 = $10,0000 |
| 1 percent. |
| $100 / $1,000 = 10% |
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The amount of money you wish to hold, or your demand for money, depends on:
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| How much income you would like to have. |
| How much wealth you would like. |
| How much of your financial assets you wish to hold in the form of money. |
| All of the above. |
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The model of optimal money balances, which explains the rationale for holding money during a given month, makes the following assumption(s):
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| Spending occurs at a uniform rate. The same amount is spent each day. |
| Spending is exactly equal to income for the month. |
| Income arrives only once a month, at the beginning of the month. |
| Only two types of assets are available to households: bonds and money. |
| All of the above. |
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Refer to the graph below. How does this person manage his money balances? 
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| This person earns $1,000, spends $500 throughout the month, and saves the rest (or buys a $500 bond). |
| This person earns $1,000, spends $500 throughout the month, and buys a $250 bond. |
| This person earns $1,000, spends $1,000 throughout the month, and buys a $500 bond at the beginning of the month only to sell it halfway through the month. |
| This person earns $1,000, spends $500, and buys two $250 bonds, one at the beginning of the month and one halfway through the month. |
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Refer to the graph below. What is the impact of an increase in the market rate of interest on this graph, all else the same?
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| The horizontal, dashed line shifts upward. |
| The horizontal, dashed line shifts downward. |
| The solid diagonal lines would stretch higher. |
| The amount of total income ($1,000) would decrease. |
| Spending would not occur at a constant rate. |
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Assume that there are no management costs associated with buying and selling bonds. What is the impact of an increase in the interest rate on money holdings and interest revenue?
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| Both money holdings and interest revenue would rise. |
| Both money holdings and interest revenue would decline. |
| Money holdings would rise and interest revenue would decline. |
| Money holdings would decline, and interest revenue would rise. |
| Money holdings would remain the same, and interest revenue would rise. |
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Which of the following motives is a better explanation of the inverse relationship between the interest rate and the demand for money?
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| The transactions motive. |
| The speculative motive. |
| The precautionary motive. |
| The inflationary expectations motive. |
| None of the above. The relationship between the interest rate and the demand for money is direct, not inverse. |
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The price that a buyer is willing to pay for an existing bond:
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| Is higher than its face value when the buyer is willing to accept a lower interest rate than before. |
| Is not affected by the interest rate. |
| Is higher when interest rates are low and expected to rise. |
| Is never lower than the face value of the bond. |
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When interest rates are high today and expected to fall:
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| Demand for bonds today is low and money demand is high. |
| Demand for bonds today is high and money demand is low. |
| Both demand for bonds and money demand today are high. |
| Both demand for bonds and money demand today are low. |
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The demand for money increases when:
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| Both the total dollar volume of transactions and the average transaction amount increase. |
| Both the total dollar volume of transactions and the average transaction amount decrease. |
| The total dollar volume of transactions increases and the average transaction amount decreases. |
| The total dollar volume of transactions decreases and the average transaction amount increases. |
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Fill in the blanks. A good indicator of the total number of transactions in the economy is __________, while the average amount of each transaction depends more directly on __________.
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| the interest rate; income |
| output; income |
| income; the price level |
| income; the interest rate |
| the interest rate; the price level. |
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Refer to the graph below. What could have caused the shift in the demand for money? 
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| An increase in the price level. |
| A decrease in the level of income. |
| A decrease in the interest rate. |
| All of the above. |
| None of the above. |
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The demand for money is:
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| A flow measure. |
| A stock variable. |
| Different from how much income a household spends during a year. |
| Both a and c. |
| Both b and c. |
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Refer to the graph below. How do you read what is happening in the money market when the interest rate is r1? 
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| People will want to move out of bonds and into money--hold larger cash balances. |
| The quantity of money demanded is too high to achieve equilibrium. |
| The quantity of money demanded is greater than the quantity of money supplied; thus, the interest rate is higher than it would be in equilibrium. |
| There is more money in circulation than households and firms want to hold. |
| Given the interest rate, the supply of money is insufficient to meet the demand for money. |
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Refer to the graph below. Suppose that the Fed adopts a target the level of the interest rate. If the Fed wants to maintain the interest rate constant at r0, it will have to: 
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| Increase the money supply when the demand for money increases. |
| Increase the money supply when the demand for money decreases. |
| Leave the money supply unchanged regardless of changes in the demand for money. |
| Decrease the reserve requirement when the demand for money shifts to the left. |
| None of the above. The Fed cannot target and never has targeted the interest rate. |
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Refer to the graph below. Starting at point a, which of the following moves best characterizes the impact of higher income in the economy? 
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| The move from a to b. |
| The move from a to c. |
| Both moves simultaneously--the move from a to b, and from a to c. |
| Neither the move from a to b, nor the move from a to c. |
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Refer to the graph below. Starting at point a, the shift in the demand for money indicates that: 
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| Income and prices must be rising. |
| Interest rates must be rising. |
| Income must be rising while prices are declining. |
| Interest rates must be declining. |
| Income must be rising and prices declining. |
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Refer to the graph below. Starting at point a, the reaction of the Fed to the increase in money demand during a period of easy monetary policy can be best described by: 
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| The move from a to b. |
| The move from a to c. |
| A move somewhere between a to b, and a to c. |
| No move at all in response to the increase in demand. |
| A move not described in the graph because the money supply would decrease under easy monetary policy. |
