Econ Unit 5 Review (part 2)

Which of the following is true for both loans and bonds?

• They are interest-bearing assets.

• They are both liquid and illiquid

• They are risk-free assets.

• They are equity.

Cash, a house, bonds, and a savings account are all financial assets. Which of the following rankings lists these assets from the least liquid to the most liquid?

• Cash, bonds, house, savings account

• Bonds, house, savings account, cash

• House, bonds, savings account, cash

• Savings account, cash, bonds, house

Nathan has been unable to trust banks since the failure of his savings and loan bank. He claims that storing his hard-earned money at home is costless. Is Nathan correct?

• Yes, because money is the most liquid form of financial assets.

• Yes, because there is no opportunity cost in holding money.

• No, because money is the least liquid form of financial assets.

• No, because the opportunity cost of holding money is the lost interest he could have earned on other financial assets.

Which of the following describes the relationship between the nominal interest rate and the quantity of money people want to hold as depicted by the money demand curve?

• Positive, and the money demand curve is upward sloping.

• Positive, and the money demand curve is downward sloping.

• Inverse, and the money demand curve is upward sloping.

• Inverse, and the money demand curve is downward sloping.

An increase in the price level will affect the money market and bond market in which of the following ways?

• The nominal interest rate rises, and the value of bonds falls.

• The nominal interest rate falls, and the value of bonds is unaffected.

• The nominal interest rate rises, and the value of bonds rises.

• The nominal interest rate falls, and the value of bonds rises.

One way in which the Federal Reserve works to change the United States money supply is by changing the:

• number of banks in operation

• price level

• discount rate

• government spending

Which of the following would constitute an Expansionary Monetary Policy?

• Open Market Sales

• Decreasing Government Spending

• Decreasing the Reserve Requirement

• Increasing the Discount Rate

Country X is operating at full-employment, which of the following will happen if Country X’s central bank conducts a contractionary monetary policy?

• The economy will be in a recessionary gap; the price level will decrease, and the real output level will increase.

• The economy will be in a recessionary gap; the price level and the real output level will decrease.

• The economy will be in an inflationary gap; the price level and the real output level will increase.

• The economy will be in an inflationary gap; the price level will increase, and the real output level will decrease.

A country’s central bank purchased government bonds from the public in the open market. How would this action affect the nominal interest rate and the price level in the short run?

• There would be a decrease in the nominal interest rate and a decrease in the price level.

• There would be an increase in the nominal interest rate and a decrease in the price level.

• There would be an increase in the nominal interest rate and a decrease in the price level.

• There would be a decrease in the nominal interest rate and an increase in the price level.