part2_prac_final_solution-2.pdf - Multiple Choice Questions...

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Multiple Choice Questions 1. Which of the following would decrease the real money demand? a) You visit the banks less often b) A decrease in the real interest rate c) A decrease in the nominal transaction cost of banking d) An increase in the real consumption 2. Ben earns annual nominal income of $24,000, which is paid to him monthly. His annual nominal consumption is $24,000. He holds all his financial assets in the form of money and he holds no bonds. Assume that he shops continuously. What is his average money balance? Use the following information to answer the next two questions Ross is choosing his optimal money demand and the time interval between bank visits to convert his bond to money. Between bank visits, he shops continuously. The interest rate on bonds is 5%. (R = 0.05) The real transaction cost is γ/P = 4. Price level is P = 2. His annual nominal consumption is $32,000. 3. How many times in a year should he visit the bank? 4. How much money (nominal cash) should Ross withdraw per each bank visit? 5. In the money market, a technology that increases the transaction cost of banking would lead to _____________ in the price level. A shock in the economy that leads to a decrease in interest rate would lead to _____________ in the price level. a) an increase; an increase b) a decrease; an increase c) an increase; a decrease d) a decrease; a decrease 6. A decrease in the amount of lump-sum tax leads to _________ in the marginal tax rate and Use the following information to answer the next two questions.
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