Homework Answers
Solution: Option-E
Explanation: The opportunity cost of holding money rises when the rate of interest increases, thus people desire to hold less of it. The bond is negatively related to the interest rate in the market. Change in real income will impact the demand
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(Spring 2015 Prelim 2) Which of the following argument is correct? (a) The opportunity cost of...
5. The motives for holding money Aa Aa Match the correct motive for holding money to...
5. The motives for holding money Aa Aa Match the correct motive for holding money to the following definitions. Motive Definition The stock of money people hold to pay everyday predictable expenses Transactions demand for money The stock of money people hold to take advantage of future changes in Speculative demand for money the price of non-money financial assets The stock of money people hold to pay unpredictable expenses Precautionary demand for moey Identify the motive for holding money in...
50. Ceteris paribus, the total demand for money curve will increase (shift rightward): A. if interest...
50. Ceteris paribus, the total demand for money curve will increase (shift rightward): A. if interest rates increase. B. if nominal GDP decreases. C. if the price level decreases. D. if nominal GDP increases. 51. Ceteris paribus, the total demand for money curve will decrease (shift leftward): A. if interest rates increase. B. if nominal GDP decreases. C. if the price level increases. D. if nominal GDP increases. 52. Which of the following is correct? A. The asset (speculative) demand...
For all the questions below select the appropriate answer: MP IMP Interest rate i INTY) Real...
For all the questions below select the appropriate answer: MP IMP Interest rate i INTY) Real money balances The money market in the diagram presented shows that with unchanged demand for money the market adjustment to an increase in real money supply: changes the price level to hold the real money supply constant has no effect on interest rates or bond prices. raises the equilibrium interest rate from it to lo as portfolio managers bid bond prices down. lowers the...
The following graph shows the money market in a hypothetical economy. The central bank in this...
The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. ASsume that the Fed fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money. After the increase in the price level, the quantity of money demanded at the initial interest rate of 9%...
7. Which of the following statements is (are) correct? (x) In the market for money, as...
7. Which of the following statements is (are) correct? (x) In the market for money, as illustrated by the money market diagram, an increase in the value of money (1/P) would change the quantity of money demanded, but not the money supplied. (y) The demand for goods and services would increase when the money supply shifts rightward. (z) If the Fed bought bonds in the open market the money supply would shift rightward and the value of money would increase....
1. The interest rate on Treasury bills (with short maturities) can be thought of as the...
1. The interest rate on Treasury bills (with short maturities) can be thought of as the opportunity cost of holding (non-interest bearing) money. We think of the money stock as being determined by the Federal Reserve. In the liquidity preference graph, we put the interest rate on the vertical axis and the amount of money supplied and demanded on the horizontal axis. An increase in the money supply a. shifts the demand for money curve to the left, which causes...
TANe 41. What can cause the asset demand for money curve to shift to the left?...
TANe 41. What can cause the asset demand for money curve to shift to the left? A). If the interest rate increases. C). If nominal GDP increases E). If the price level increases B). If the interest rate decresases. D). If nominal GDP decreases 42, Which of the following is true regarding the quantity of asset demand for money? A) It varies directly with the level of nominal GDP. B) It varies directly with the rate of interest C) It...
decided with an adel 14. The endogenous variable in the liquidity preference model is a money...
decided with an adel 14. The endogenous variable in the liquidity preference model is a money supply bmoney demand. price level d. velocity of money. • e interest rate.. 15. In developing countries, financial markets are not developed as the developed countries. Honce most businesses depend on funding from banks. So developing countries depend mostly on .a. indirect finance. b direct finance. c. non-intermediary finance d. government finance. Figure 3-2 QoFM 16. The graph above shows the liquidity preference model....
Which of the following is an advantage of convertible bonds? Investors can convert the bonds into...
Which of the following is an advantage of convertible bonds? Investors can convert the bonds into higher coupon rate bonds. Investors can choose to hold the company's bonds or convert the bonds into its stock. Investors are paid a penalty on the conversion of the bonds. Investors are redeemed for the difference between the face value and the market price on redemption of the bonds. Investors can claim interest for the remaining life of the bonds on the bonds' early...
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against...
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the...
5. The motives for holding money Aa Aa Match the correct motive for holding money to the following definitions. Motive Definition The stock of money people hold to pay everyday predictable expenses Transactions demand for money The stock of money people hold to take advantage of future changes in Speculative demand for money the price of non-money financial assets The stock of money people hold to pay unpredictable expenses Precautionary demand for moey Identify the motive for holding money in...
50. Ceteris paribus, the total demand for money curve will increase (shift rightward): A. if interest rates increase. B. if nominal GDP decreases. C. if the price level decreases. D. if nominal GDP increases. 51. Ceteris paribus, the total demand for money curve will decrease (shift leftward): A. if interest rates increase. B. if nominal GDP decreases. C. if the price level increases. D. if nominal GDP increases. 52. Which of the following is correct? A. The asset (speculative) demand...
For all the questions below select the appropriate answer: MP IMP Interest rate i INTY) Real money balances The money market in the diagram presented shows that with unchanged demand for money the market adjustment to an increase in real money supply: changes the price level to hold the real money supply constant has no effect on interest rates or bond prices. raises the equilibrium interest rate from it to lo as portfolio managers bid bond prices down. lowers the...
1. The interest rate on Treasury bills (with short maturities) can be thought of as the opportunity cost of holding (non-interest bearing) money. We think of the money stock as being determined by the Federal Reserve. In the liquidity preference graph, we put the interest rate on the vertical axis and the amount of money supplied and demanded on the horizontal axis. An increase in the money supply a. shifts the demand for money curve to the left, which causes...
TANe 41. What can cause the asset demand for money curve to shift to the left? A). If the interest rate increases. C). If nominal GDP increases E). If the price level increases B). If the interest rate decresases. D). If nominal GDP decreases 42, Which of the following is true regarding the quantity of asset demand for money? A) It varies directly with the level of nominal GDP. B) It varies directly with the rate of interest C) It...
decided with an adel 14. The endogenous variable in the liquidity preference model is a money supply bmoney demand. price level d. velocity of money. • e interest rate.. 15. In developing countries, financial markets are not developed as the developed countries. Honce most businesses depend on funding from banks. So developing countries depend mostly on .a. indirect finance. b direct finance. c. non-intermediary finance d. government finance. Figure 3-2 QoFM 16. The graph above shows the liquidity preference model....
- Question 1 (5 marks) I. Suppose money demand (on the horizontal axis) is plotted against the nominal interest rate on the vertical axis). This money demand curve will shift to the right when which of the following occurs? a. an increase in income. b. a reduction in the interest rate. c. an increase in the money supply. d. a decrease in the money supply. II. At the current interest rate, suppose the supply of money is less than the...
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