(1) What would be the effect of an increase in the demand for loanable funds at
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Question
(1) What would be the effect of an increase in the demand for loanable funds at every interest rate? Interest rates would rise. Interest rates would fall. There would be no effect on interest rates, because the supply of loanable funds would increase by the same amount. None of the above
(2) The demand curve for loanable funds represents the behavior of households. foreigners. the government. businesses.
(3) A goldsmith need not keep all of the gold deposits people leave with him on hand in his vault, because all depositors are not likely to demand their gold at once. some depositors are likely to forget that the goldsmith is keeping their gold for them. deposits always equal withdrawals. none of the above.
(4) What is the total change in the money supply if the reserve requirement is 10% and deposits rise by $5,000? $500 $4,500 $45,000 $50,000
(5) There is an inverse relationship between a country’s standard of living and its rate of savings and investment. true false
(6) In practice, which tool does the Federal Reserve use most often to increase or decrease the money supply? The required reserve ratio The discount rate The prime rate Open market operations
(7) Which of the following regarding money is not true? Money is an asset. Money is backed by gold. Money is a form of wealth. Money is not an equivalent to income.
(8) M1 includes cash. coins. travelers’ checks. all of the above.
(9) Which of the following is not a motive for holding money? The transaction motive The depository motive The precautionary motive The speculative motive
(10) Which of the following statements is true? Excess demand is the result of an interest rate above equilibrium. If the Fed increases the money supply, the equilibrium interest rate rises. As the price of a bond increases, the interest rate increases. If the price level or real GDP changes, the money demand curve will shift.
(11) Which of the following statements is true? Lenders directly provide funds to borrowers through financial intermediaries. The financial system is synonymous with the Federal Reserve System. Equity holders have the first claim to the returns on investments. Bonds are debt instruments, while stocks are equity instruments.
(12) Which of the following is an example of equity finance? Buying Treasury bills Buying corporate bonds Buying municipal bonds Buying stock
(13) Calculate the present value of $10,000 invested at 12% for 10 years. $3,219.73 $6,635.99 $8,928.57 $9,254.67
(14) How many Federal Reserve districts are there in the U.S.? 8 10 12 14
(15) The Fed’s most commonly used tool of monetary policy is Changing the required reserve ratio Changing the discount rate Open market operations Printing currency
(16) Lowering the discount will increase the money supply. true false
(17) If the required reserve ratio is 10%, the increase in the money supply that results from $500,000 of new deposits equals $5,000. $50,000. $500,000. $5,000,000.
(18) If the Federal Reserve purchases government bonds, all of the following will occur except commercial bank reserves will increase. the discount rate will be forced up. the money supply will increase. there will be a multiple expansion of banking deposits.
(19) When real income increases, people will demand more money to do more shopping. people will demand less money and save more. people will invest more in interest-bearing assets. the demand for money is unaffected.
(20) The supply curve for loanable funds slopes upward because as the interest rate increases, the quantity of loanable funds supplied decreases. people will forego consumption at higher interest rates and save. as the interest rate increases, the supply of loanable funds increases. all of the above.
(21) Which of the following is a characteristic of money? Indivisible Perishable Portable All of the above
(22) Over the past few decades, it has become easier to convert assets to cash. For this reason, the ____________________ for holding money has grown less important. transaction motive speculative motive accumulation motive precautionary motive
(23) If the money supply increases, then interest rates will rise. true false
(24) Which of the following actions would most effectively reduce the demand for money? Taking money out of circulation Cutting taxes Sending “tax rebate” checks to all American households Mandating price increases on key consumer goods
(25) Which one of the following is an example of a financial intermediary? A T-bill A brokerage A bank An income-earning consumer
(26) If a pension fund owns stock in a corporation, the stock would be listed as an asset on its balance sheet. true false
(27) If a bond’s coupon rate is 5% and the bondholder receives a $500 interest payment annually, the face value of the bond must be ________. $10,000 $25 $1,000 $100,000
(28) If there is a bond with a face value of $500 that pays $50 in interest annually which of the following statements must be true? The rate of return is equal to 10%. The market interest rate must be less than 10%. The market interest rate must be more than 10%. The coupon rate is equal to 10%.
(29) The Federal Reserve is involved in clearing individuals’ checks and wiring money between financial institutions. true false
(30) How many Federal Reserve districts are there? 7 12 24 Approximately 4,000
(31) Which of the following Federal Reserve actions could explain the shift depicted in the graph?
Buying T-bills Raising the reserve requirement Increasing the discount rate Destroying aged currency
(32) Fractional reserve banking means that the federal banking system is decentralized, operating through 12 districts rather than one central bank. banks are required to hold a fraction of their liabilities in the form of cash in their vaults or as deposits with the Fed. banks must “synchronize” their customers’ withdrawals and deposits so that there is a rough balance in liquidity at any given time. banks are legally permitted to give loans only up to the fractional rate, as determined by the Fed.
(33) Banks could not create money if the reserve requirement were 100%. true false
(34) Which of the following is an example of “near money”? Checking accounts Cash Savings accounts Bank’s reserves
(35) John takes out a loan that increases his purchasing power by 8% over one year. If inflation is 5%, what is the nominal interest rate? 13% 3% 8% 3%
(36) In the macroeconomy, savings comes from the savings of households, a government budget surplus, and a trade surplus. the savings of households, a government budget surplus, and a trade deficit. the savings of households, a government budget deficit, and a trade surplus. the consumption of households, a government budgets surplus, and a trade surplus.
Explanation / Answer
(1)
What would be the effect of an increase in the demand for loanable funds at every interest rate?
Interest rates would rise.
If the demand increase at every interest rate, the bank or the financial intermediary would like to benefit from the situation and would tend to raise the rate of interest of the loans.
(2)
The demand curve for loanable funds represents the behavior of
businesses.
As the loanable funds are used by the business as invest in the various activities, such as investment in new project or buying of new equipment.
(3)
A goldsmith need not keep all of the gold deposits people leave with him on hand in his vault, because
all depositors are not likely to demand their gold at once.
He will have time to give the depositors back their gold when required and hence, it can be saved in other safe locations.
(4)
What is the total change in the money supply if the reserve requirement is 10% and deposits rise by $5,000?
$500
$4,500
$45,000
$50,000
By the help of money multiplier effect the money multiplier = 1/10% = 100/10 = 10
Total increase in the money supply = 5000*10 = 50000
(5)
There is an inverse relationship between a country’s standard of living and its rate of savings and investment.
False
The rate of saving is inversely proportional to rate of investment.
Please post the rest of the question again as a seperate question.
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