Chapter 27 - Money, Interest Rates, and Economic Activity

Question 1

The group of economists that believe in the effectiveness of monetary policy but not fiscal policy are known as
A) Neoclassicals
B) New Growth Theorists
C) Monetarists
D) Classical economists
E) Keynesians

Answer 1

C

Question 2

Long-run neutrality of money implies that an increase in money supply will
A) not affect any of the variables in the long run
B) only result in inflation in the long run
C) only result in depression in the long run
D) only affect the level of output in the long-run

Answer 2

B

Question 3

Which of the following statements is correct regarding bonds?
A) Bonds with high yields reflect high risk instruments
B) The equilibrium market price of a bond is always greater than the present value of tat bond.
C) A decrease in market interest rate would increase a bond’s yield.
D) An increase in the market rate would result in an increase in the present value of the bond.

Answer 3

A

Question 4

If a person is holding for unplanned transactions that may occur in future, this demand for money is known as
A) real balance demand
B) transactions demand
C) speculative demand
D) precautionary demand
E) nominal balance demand

Answer 4

D

Question 5

What is the present value of a bond that pays $109.00 one year from today if the interest rate is 10% per year?
A) $99.09
B)$109.00
C)$128.82
D)$148.64
E)$118.91

Answer 5

A

Question 6

When a stock market analyst suggests that investors should hold cash instead of stocks or bonds, for what reason are people being encouraged to hold cash?
A) present value demand
B) transactions demand
C) risk-return demand
D) precautionary demand
E) speculative demand

Answer 6

E

Question 7

Money demand is likely to increase the most during which part of the business cycle?
A) recovery
B) peak
C) contraction
D) trough
E) recession

Answer 7

A

Question 8

According to the views of the Classical economists, if the money supply doubles,
A) there will be no effect on relative prices
B) money prices will be halved
C) level of investment will double
D) real income will double

Answer 8

A

Question 9

If the annual market interest rate is 20%, the annual opportunity cost of having $40 cash in your pocket is
A) $40
B) $800
C) $4
D) $0
E) $8

Answer 9

E