Final+practice - Name: _ Date: _ 1. If the equilibrium...

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Name: __________________________ Date: _____________ 1. If the equilibrium interest rate in the money market is 5%, at an interest rate of 2%: A) sellers of interest-bearing financial assets must offer higher interest rates to find willing buyers. B) sellers of interest-bearing financial assets must offer lower interest rates to find willing buyers. C) sellers of interest-bearing financial assets can offer 2% interest and still find willing buyers. D) sales of financial assets do not depend on the rate offered. 2. Suppose the Fed has set a target for the federal funds rate. If initially the equilibrium interest rate happens to be higher than the target interest rate, then the Fed should: A) sell treasury bills in the open market, decrease money supply, shift the supply of money curve to the left, and increase the interest rate to the target rate. B) purchase treasury bills in the open market, decrease money supply, shift the supply of money curve to the left, and lower the interest rate to the target rate. C) purchase treasury bills in the open market, increase money supply, shift the supply of money curve to the right, and lower the interest rate to the target rate. D) sell treasury bills in the open market, increase money supply, shift the supply of money curve to the left, and increase the interest rate to the target rate. 3. The Federal Reserve's Open Market Committee has decided that the federal funds rate should be 2% rather than the current rate of 1.5%. The appropriate open market action is to _____ Treasury bills to _____ the money _____ curve. A) sell; decrease; demand B) sell; decrease; supply C) buy; decrease; supply D) buy; increase; demand 4. Expansionary monetary policy will ______ interest rates and _______ savings in the short run. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease Page 1
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Use the following to answer question 5: Figure: Short-Run Determination of the Interest Rate 5. (Figure: Short-Run Determination of the Interest Rate) If the money supply is currently at MS 2 and the central bank chooses to sell bonds, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the: A) money supply curve to MS 1 that lowers the interest rate. B) supply of loanable funds from S 1 to S 2 and a lower interest rate. C) supply of loanable funds from S 2 to S 1 and a higher interest rate. D) interest rate from r 1 to r 2 . 6. Expansionary monetary policy causes _______ in interest rates in the short run and ______ in interest rates in the long run. A) a decrease; no change B) a decrease; a decrease C) no change; a decrease D) no change; no change Page 2
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Use the following to answer question 7: Figure: AD–AS 7. (Figure: AD–AS ) Refer to the AD–AS diagram. Suppose the economy is initially at E 1 , and then moves to E 2 where AD 2 intersects SRAS 1 . Finally the economy moves to E 3 . The classical model of price level:
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This note was uploaded on 01/24/2011 for the course ECON 102 taught by Professor Rossana during the Winter '08 term at University of Michigan.

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Final+practice - Name: _ Date: _ 1. If the equilibrium...

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