Interest Rates and Monetary Policy Quiz

The asset demand for money:

• is unrelated to both the interest rate and the level of GDP.

• varies inversely with the rate of interest.

• varies inversely with the level of real GDP.

• varies directly with the level of nominal GDP.

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

• Nominal GDP decreases and the interest rate decreases.

• Nominal GDP increases and the interest rate decreases.

• Nominal GDP decreases and the interest rate increases.

• Nominal GDP increases and the interest rate increases.

If the quantity of money demanded exceeds the quantity supplied:

• the supply-of-money curve will shift to the left.

• the demand-for-money curve will shift to the right.

• the interest rate will rise.

• the interest rate will fall.

The equilibrium rate of interest in the market for money is determined by the intersection of the:

• supply-of-money curve and the asset-demand-for-money curve.

• supply-of-money curve and the transactions-demand-for-money curve.

• supply-of-money curve and the total-demand-for-money curve.

• investment-demand curve and the total-demand-for-money curve.

Which of the following statements is correct?

• Interest rates and bond prices vary directly.

• Interest rates and bond prices vary inversely.

• Interest rates and bond prices are unrelated.

• Interest rates and bond prices vary directly during inflations and inversely during recessions.

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

• Loans to commercial banks.

• Federal Reserve Notes in circulation.

• Treasury deposits.

• Reserves of commercial banks.

Which of the following is a tool of monetary policy?

• Open-market operations.

• Changes in banking laws.

• Changes in tax rates.

• Changes in government spending.

Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply:

• contracts and commercial bank reserves increase.

• expands and commercial bank reserves decrease.

• contracts and commercial bank reserves decrease.

• expands and commercial bank reserves increase.