Practice Exam Exercises for Chapter 4 key

Practice Exam Exercises for Chapter 4 key - money people...

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BEcon 301 Practice Exam Exercises for Chapter 4 – Answer key 1. buying; decrease; 2. decrease; decrease; 3. false; 4. true; 5. false; 6. a) When the interest rate is higher the cost of holding money is higher. We are better of investing it in interest bearing assets (i.e. bonds). Md = 19,800. b) 5%. c) The Fed should sell bonds until M S = 18,700. 7. a) Demand for money refers to the amount of
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Unformatted text preview: money people want to hold. M d 1= 34,800 6% M d 2= 32,400 The money demand curve is downward sloping because at high interest rates people are willing to hold less money and keep their wealth in interest bearing assets. 2% b) 5% c) The Fed should sell bonds until M S = 32,400 32,400 34,800 Q of money...
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