Chapter 11 hw5

# Principles of Macroeconomics: A Study Guide

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Chapter 11: Money Demand, The Equilibrium Interest Rate, and Monetary Policy Multiple Choice

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1. If a \$1,000 bond pays \$100 per year, the interest rate on the bond equals: \$1,000 / \$100 = \$10 \$100 \$1,000 * \$100 = \$10,0000 1 percent. \$100 / \$1,000 = 10% 2. The amount of money you wish to hold, or your demand for money, depends on: How much income you would like to have. How much wealth you would like. How much of your financial assets you wish to hold in the form of money. All of the above. 3.
The model of optimal money balances, which explains the rationale for holding money during a given month, makes the following assumption(s): Spending occurs at a uniform rate. The same amount is spent each day. Spending is exactly equal to income for the month. Income arrives only once a month, at the beginning of the month. Only two types of assets are available to households: bonds and money. All of the above. 4. Refer to the graph below. How does this person manage his money balances? This person earns \$1,000, spends \$500 throughout the month, and saves the rest (or buys a \$500 bond). This person earns \$1,000, spends \$500 throughout the month, and buys a \$250 bond. This person earns \$1,000, spends \$1,000 throughout the month, and buys a \$500 bond at the beginning of the month only to sell it halfway through the month.

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This person earns \$1,000, spends \$500, and buys two \$250 bonds, one at the beginning of the month and one halfway through the month. 5. Refer to the graph below. What is the impact of an increase in the market rate of interest on this graph, all else the same?
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