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Economics
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13 Jan 2018

MONEY AND BANKING

Assume that savers/lenders are risk averse. A decrease in default risk of Bond “A” will _____ demand and price of Bond “A” thereby resulting in _____ in yield of Bond “A”.

a.) increase; decrease

b.) decrease; decrease

c.) increase; increase
d.) decrease; increase

EXPLAIN ANSWER PLEASE - credit will not be given with no explanation.

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Beverley Smith
Beverley SmithLv2
16 Jan 2018
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Related questions

• In terms of the demand for money, the interest rate is:

A) the price of borrowing money. B) the return on money that is saved for the future. C) the rate at which current consumption can be exchanged for future consumption. D) the opportunity cost of holding money.

• When the Fed conducts open market operations, the Fed buys and sells government securities to:

A) the private sector. B) foreign countries only. C) state and local government agencies only. D) the U.S. Treasury.

An open-market purchase of government bonds by the Fed results in ________ in bank reserves and ________ in the supply of money.

A) an increase; a decrease B) a decrease; a decrease C) an increase; an increase D) a decrease; an increase •

A decrease in the required reserve ratio:

A) will increase the money supply. B) will decrease the money supply. C) will not change the money supply. D) will decrease the discount rate.

The demand curves for both goods "E" and "F" slope downwards-and-to-the-right. Assume the government installs a price floor in the market for good "E" at the equilibrium price and a price ceiling in the market for good "F" at the equilibrium price. Now, if there is a technological advance in the production of both goods then the market price of good "E" will (increase / no change/decrease) and the market price of good "F" will (increase / no change/decrease).

A. Not change; decrease.

B. Decrease; decrease.

C. Increase; not change.

D. Not change; increase.

E. Decrease; not change.

Question 1. (0.1 pt) According to the wealth effect, a higher price level will (decrease, increase)

the number of goods and services demanded. (Circle the correct answer for each.)

 

Question 2. (0.2 pt) If the central bank wants to expand aggregate demand, it can (decrease, increase)

the money supply, which would (decrease, increase) the interest rate.

(Circle the correct answer for each.)

 

Question 3. (0.2 pt) Monetary policy that contracts the money supply, will (decrease, increase) the

interest rate causing the aggregate demand curve to shift (in, out).

(Circle the correct answer for each.)

 

Question 4. (0.7 pt) The Federal Reserve contracts the money supply by 5 percent.

(Make sure to label your axes.)

 

a. ) Use the supply of money and the demand for money diagram to illustrate the impact of this policy on the interest rate.

b. ) Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run.

 

Question 5 . (0.8 pt) Explain how each of the following developments would affect the supply of money,

the demand for money, and the interest rate. Illustrate your answers with diagrams.

(Make sure to label your axes.)

 

a. ) The Fed's bond traders sell bonds in open-market operations.

 

b. ) An increase in credit-card availability reduces the cash people hold.

 

c. ) The Federal Reserve reduces banks' reserve requirements.

 

d. ) Households decide to hold more money to use for holiday shopping.

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