Chapter 14 Flashcards
In the short run when prices don’t have enough time to change, the
Federal Reserve:
a. can influence the level of interest rates in the economy.
- The transactions demand for money comes mostly from the fact that:
b. money makes it easier to make purchases.
- The opportunity cost of holding money is:
d. the return that could have been earned from holding wealth in other
assets.
- An increase in interest rates leads to:
c. a leftward movement up along the demand for money curve.
- The demand for money curve has shifted left. This may be the result of:
a. a decrease in the level of prices.
d. a decrease in real GDP.
- Speculative demand for money is the demand for money that arises:
c. because money is less risky than other assets.
- The demand for money in practice is the sum of:
d. transactions, liquidity, and speculative demands.
- If the Federal Reserve conducts an open market sale the:
b. interest rate will increase.
- Based on the model of the money market, when prices in the economy
increase, the equilibrium interest rate should:
b. increase.
Based on the model of the money market, when real income decreases, the
equilibrium interest rate should:
c. decrease.
Based on the model of the money market, when the risk associated with
holding other assets increases, the equilibrium interest rate should:
increase.
- An open market purchase by the Fed:
a. increases investment and increases output.
- An increase in the reserve requirement:
b. increases interest rates and decreases output.
- If the Fed wished to decrease inflation, it could:
a. the rate at which banks can borrow from the Fed.
- Higher U.S. interest rates cause the value of the dollar to:
b. rise, making U.S. goods relatively more expensive on world markets.
