econ test question bank
If banks decide to keep fewer excess reserves and instead lend more, which of the following is
the most likely effect? - ANSThe nominal interest rate decreases.
Which of the following statements is true when the money market is in equilibrium? - ANSNo
economic forces are acting on the economy to change the interest rate.
Which of the following could have caused this change? - ANSa decrease in the money supply
Liquidity preference theory is used to motivate - ANSthe demand for money.
What happens if banks decide to start keeping excess reserves instead of fully loaning out? -
ANSThe money supply decreases.
Which of the following describes the process that returns the money market to equilibrium when
the quantity of money demanded is greater than the money supply? - ANSPeople sell their
bonds, which lowers bond prices, which in turn increases interest rates.
What happens to the nominal interest rate and the quantity of money in the money supply if the
demand for money increases? - ANSNominal interest rate increases; no change in the quantity
of money.
The current interest rate in Atlantis is 4%. At an interest rate of 4%, households want to hold 4
million in cash and 2 million in bonds. However, M1 is currently 3 million. Which of the following
best describes what will happen in the money market in Atlantis? - ANSThe nominal interest
rate will increase, which will lower the quantity of money demanded
If a new technology is invented that makes it easier to withdraw money from the bank, which of
the following will occur in the money market? - ANSThe demand for money decreases and the
nominal interest rate decreases
All of the following lead to an increase in nominal interest rates EXCEPT - ANSThe central bank
buy bonds
The development of online banking has made it easier for people to move wealth to cash from
other forms of assets. What change would counteract the effect of this on the nominal interest
rate? - ANSA decrease in the money supply
Hamsterville's national income increased due to an increase in government spending. How does
an increase in national income affect the money market and interest rates? - ANSDemand for
money increases; interest rates increase
, Which of the following increases the demand for money? - ANSA higher price level
Which of the following would cause an unambiguous decrease in nominal interest rates? -
ANSPeople are able to access money more easily
All of the following decrease nominal interest rates EXCEPT - ANSPeople start keeping more
money outside of bank
An equilibrium in the market for loanable funds is most closely associated with which of the
following equations? - ANSS=I
After interest rates were lowered in Hamsterville, national savings in Hamsterville
decreased.Which of the following changes would reflect what is described in the statement
above? - ANSThe quantity of loanable funds supplied decreased.
Based on current conditions in the credit market in Patagonia, the amount of money that
borrowers want to borrow is greater than the amount of money that savers want to save. Which
of the following best describes what will happen as a result of this disequilibrium in credit
markets? - ANSThe real interest rate will increase until the quantity of loanable funds demanded
equals the quantity of loanable funds supplied
Westley is a citizen of Florin. He believes that the investment conditions in the neighboring
country of Guilder are much better. Assume both countries have an open economy. If other
investors share Westley's opinion, what will happen to net capital inflows and the supply of
loanable funds in Guilder? - ANSNet capital inflows will increase; the supply of loanable funds
will increase
Which of the following best describes how the two axes should be labeled in a model that shows
the relationship between borrowers and savers? - ANSReal interest rate on the vertical axis;
quantity of loanable funds on the horizontal axis
Which of the following best describes why the quantity of loanable funds supplied increases
when the real interest rate increases? - ANSHigher real interest rate encourages savings
Which of the following best describes national savings in a closed economy? - ANSPrivate
savings + public savings
Which of the following is correct about capital inflows? - ANSCapital inflows can be positive,
negative, or equal to zero
Which of the following equations represents the relationship between savings and investment in
a closed economy? - ANS(Y−C−T)+(T−G)=I
If banks decide to keep fewer excess reserves and instead lend more, which of the following is
the most likely effect? - ANSThe nominal interest rate decreases.
Which of the following statements is true when the money market is in equilibrium? - ANSNo
economic forces are acting on the economy to change the interest rate.
Which of the following could have caused this change? - ANSa decrease in the money supply
Liquidity preference theory is used to motivate - ANSthe demand for money.
What happens if banks decide to start keeping excess reserves instead of fully loaning out? -
ANSThe money supply decreases.
Which of the following describes the process that returns the money market to equilibrium when
the quantity of money demanded is greater than the money supply? - ANSPeople sell their
bonds, which lowers bond prices, which in turn increases interest rates.
What happens to the nominal interest rate and the quantity of money in the money supply if the
demand for money increases? - ANSNominal interest rate increases; no change in the quantity
of money.
The current interest rate in Atlantis is 4%. At an interest rate of 4%, households want to hold 4
million in cash and 2 million in bonds. However, M1 is currently 3 million. Which of the following
best describes what will happen in the money market in Atlantis? - ANSThe nominal interest
rate will increase, which will lower the quantity of money demanded
If a new technology is invented that makes it easier to withdraw money from the bank, which of
the following will occur in the money market? - ANSThe demand for money decreases and the
nominal interest rate decreases
All of the following lead to an increase in nominal interest rates EXCEPT - ANSThe central bank
buy bonds
The development of online banking has made it easier for people to move wealth to cash from
other forms of assets. What change would counteract the effect of this on the nominal interest
rate? - ANSA decrease in the money supply
Hamsterville's national income increased due to an increase in government spending. How does
an increase in national income affect the money market and interest rates? - ANSDemand for
money increases; interest rates increase
, Which of the following increases the demand for money? - ANSA higher price level
Which of the following would cause an unambiguous decrease in nominal interest rates? -
ANSPeople are able to access money more easily
All of the following decrease nominal interest rates EXCEPT - ANSPeople start keeping more
money outside of bank
An equilibrium in the market for loanable funds is most closely associated with which of the
following equations? - ANSS=I
After interest rates were lowered in Hamsterville, national savings in Hamsterville
decreased.Which of the following changes would reflect what is described in the statement
above? - ANSThe quantity of loanable funds supplied decreased.
Based on current conditions in the credit market in Patagonia, the amount of money that
borrowers want to borrow is greater than the amount of money that savers want to save. Which
of the following best describes what will happen as a result of this disequilibrium in credit
markets? - ANSThe real interest rate will increase until the quantity of loanable funds demanded
equals the quantity of loanable funds supplied
Westley is a citizen of Florin. He believes that the investment conditions in the neighboring
country of Guilder are much better. Assume both countries have an open economy. If other
investors share Westley's opinion, what will happen to net capital inflows and the supply of
loanable funds in Guilder? - ANSNet capital inflows will increase; the supply of loanable funds
will increase
Which of the following best describes how the two axes should be labeled in a model that shows
the relationship between borrowers and savers? - ANSReal interest rate on the vertical axis;
quantity of loanable funds on the horizontal axis
Which of the following best describes why the quantity of loanable funds supplied increases
when the real interest rate increases? - ANSHigher real interest rate encourages savings
Which of the following best describes national savings in a closed economy? - ANSPrivate
savings + public savings
Which of the following is correct about capital inflows? - ANSCapital inflows can be positive,
negative, or equal to zero
Which of the following equations represents the relationship between savings and investment in
a closed economy? - ANS(Y−C−T)+(T−G)=I
