309 The Federal Reserve is able to have an impact on financial crises because it determines tax rates Incorrect determines government spending Incorrect conducts monetary policy True Answer Correct is responsive to the people who elected its members to office Incorrect 310 Ben Bernanke is 311 312 313 chairman of the board of governors of the Federal Reserve System True Answer Correct an AIG executive who received large bonuses Incorrect a Supreme Court justice who ruled that budget deficits are unconstitutional Incorrect a financial advisor on CNBC Incorrect Generally the more liquid an asset is the lower its purchasing power Incorrect the lower its rate of return True Answer Correct the higher its capacity to store value over time Incorrect the higher its rate of return Incorrect The short term interest rate is the interest rate on financial assets that mature within less than a year True Answer Correct a year or more Incorrect 2 years Incorrect 5 years Incorrect If during 2007 the interest rate on 1 month Treasury bills was 2 5 and during 2008 the interest rate on 1 month Treasury bills was 2 one would conclude that the opportunity cost of holding money decreased True Answer Correct the opportunity cost of holding money became negative Incorrect the opportunity cost of holding money increased Incorrect 314 315 316 317 318 the opportunity cost of holding money did not change Incorrect If a checking account has an interest rate of 1 and a Treasury bill has an interest rate of 3 the opportunity cost of holding cash in a checking account is zero Incorrect 0 02 Incorrect 1 Incorrect 2 True Answer Correct People forgo interest and hold money because they are required to Incorrect to reduce their transactions costs True Answer Correct because there are no substitutes for money Incorrect because banks are too risky Incorrect If a checking account has an interest rate of 1 and a Treasury bill has an interest rate of 2 the opportunity cost of holding the checking account as money is zero Incorrect 0 02 Incorrect 1 True Answer Correct 2 Incorrect The opportunity cost of holding money is zero Incorrect the interest rate when someone uses a credit card Incorrect the difference between interest rates on monetary assets and on nonmonetary assets True Answer Correct the discount rate Incorrect We hold money to earn interest Incorrect reduce transaction costs True Answer Correct increase transaction costs Incorrect protect our purchasing power Incorrect 319 320 321 322 323 Short term interest rates refer to rates on financial assets due within 24 hours Incorrect 3 months or less Incorrect 6 months or less Incorrect 1 year or less True Answer Correct The interest earnings one gives up in order to hold more liquid assets are an opportunity cost True Answer Correct a transaction cost Incorrect an asset of the company Incorrect a liability of the company Incorrect When an individual decides to hold money instead of other assets that individual is giving up the interest that could have been earned by holding other types of assets True Answer Correct that individual becomes more likely to suffer from money illusion Incorrect that individual is not affected by unanticipated inflation Incorrect that individual is able to maintain a higher standard of living Incorrect When the short term interest rate the opportunity cost of holding money and the quantity of money individuals want to hold falls falls falls Incorrect falls falls rises True Answer Correct rises falls falls Incorrect rises falls rises Incorrect In a graph of a money demand curve which of the following variables is plotted on the vertical axis the interest rate on liquid assets like short term CDs True Answer Correct the interest rate on 30 year Treasury bills Incorrect the rate of price inflation Incorrect the rate of return in the stock market Incorrect 324 The money demand curve shows the relationship between the money supply and the quantity of money demanded Incorrect aggregate price level and the nominal quantity of money demanded Incorrect interest rate and the nominal quantity of money demanded True Answer Correct real GDP and the nominal quantity of money demanded Incorrect 325 The money demand curve is downward sloping because the opportunity cost of holding money is inversely related to the interest rate Incorrect downward sloping because the opportunity cost of holding money rises as the interest rate rises True Answer Correct downward sloping because the opportunity cost of holding money rises as the interest rate falls Incorrect upward sloping because the opportunity cost of holding money rises with the interest rate Incorrect 326 327 The amount of money that people demand is positively related to the interest rate Incorrect independent the interest rate Incorrect negatively related to the interest rate True Answer Correct positively related or negatively related to the interest rate depending on the state of the economy Incorrect The money demand curve is because a lower interest rate upward sloping increases the opportunity cost of holding money Incorrect downward sloping increases the opportunity cost of holding money Incorrect upward sloping decreases the opportunity cost of holding money Incorrect downward sloping decreases the opportunity cost of holding money True Answer Correct 328 329 330 331 333 The slope of the demand curve for money is vertical Incorrect horizontal Incorrect positive Incorrect negative True Answer Correct A decrease in the demand for money would result from an increase in income Incorrect a decrease in real GDP True Answer Correct an increase in the price level Incorrect an increase in nominal GDP Incorrect A decrease in the demand for money would result from an increase in income Incorrect an increase in real GDP Incorrect a decrease in the price level True Answer Correct an increase in nominal GDP Incorrect An increase in the demand for money would result from a decrease in nominal GDP Incorrect a decrease in real GDP Incorrect a decrease in the price level Incorrect an increase in the price level True Answer Correct 332 An increase in the aggregate price level increases the demand for money True Answer Correct decreases the demand for money Incorrect does not affect the demand for money Incorrect shifts the demand for money to the left Incorrect A 20 increase in the aggregate price level will increase the quantity of money demanded by 20 True Answer Correct the money multiplier Incorrect 334
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