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Final+practice - Name Date 1 If the equilibrium interest...

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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: 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. 4. Expansionary monetary policy will ______ interest rates and _______ savings in the short run. 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 .
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