Which of the following will cause a reduction in the amount of money in hold? an
ID: 1109675 • Letter: W
Question
Which of the following will cause a reduction in the amount of money in hold? an increase in the interest rate an increase in income C) an increase in the price level D) all of the above 8) If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but market interest rate rises to 6 percent, A) the market price of the bond is still $1,000. )the bond's annual interest payment remains equal to $50 ) the market price of the bond has increased. D the market price of the bond has decreased. 9) If the Fed decides to buy bonds, the result will be A) lower bond prices and lower interest rates. lower bond prices and higher interest rates. C) higher bond prices and lower interest rates. higher bond prices and higher interest rates. 10) Which of the following is associated with a contractionary monetary policy? Lowering the differential between the discount rate and the federal funds rate Selling bonds Lowering the required reserve ratio D) Raising bond prices 11) When the Fed purchases federal government bonds in the open market, B)the money supply expands there is no change in the money supply. ) the money supply contracts D) the demand for money expands.Explanation / Answer
7.
This is in case of increasing interest rate.
At higher interest rate, taking loan and holding money become expensive; therefore, people don’t want to do such thing.
Answer: A
8.
The market price would decrease.
It happens because the bond is no more attractive, since its interest rate (5%) is smaller than the market rate (6%).
Answer: D
9.
Higher the price of bond and lower the interest rate
Purchasing bond from the open market increases the demand of bond, it increases the price of it; at the same time money supply increases the market, which decreases the interest.
Answer: C
10.
Selling bond
Contractionary monetary policy: This is just opposite of expansionary monetary policy where government used to undertake policy of decreasing money supply in the market; selling bond is one of them. Such activity brings money in the hands of the government; therefore, there is shortage of money in the market.
Answer: B
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