1. Define interest rate.
Price of money
Payment made for the use of money
Amount of money paid per unit of time- written as the percentage of the amount borrowed
All of the above

2. A recession is often a great time to
Purchase large-capital equipment
Increase a firm's level of advertising
Seize the market share
Hire talented employees for cheap
All of the above

3. Calculate the real interest rate when given a nominal interest rate of 10% and an inflation rate of 4%.
14%
40%
6%
2.5%

4. The money multiplier equals:
1/RR
1/MPS
1/RR – MPC

5. Match each example with the correct term. (Commondity Money, Fiat Money, Bank Money)
Gold
Checking account
Euros
Silk
Yen
Tea

6. A fall in interest rate has what affect on both foreign and domestic investment?
1. Investment will fall
2. Investment will rise
3. Both 1 and 2

7. What determines a consumer's actual demand for money?
Consumer confidence in the market
Aggregate supply
Transactions demand
The rate of inflation

8. Examples of the “opportunity cost” of holding money include:
1. The interest that could have been earned by lending the money.
2. The rate of return that could have been earned by investing the money in stocks.
3. The increase in value from holding money during inflation.
All these
1 & 2 only

9. The basic determinant of transactions demand is:
Nominal GDP
Normalized GDP
Real GDP

10. What is a contributing factor to the difference in interest rates for elastic goods?
1. Liquidity- the ability of an asset to be converted into cash quickly is labelled as liquid
2. Default risk- the higher the risk, the higher the interest rate
3. Loan Maturity- longer loan terms signal greater interest rate payments
4. Only 1 and 2
5. All of the above

11. The goldsmiths of several hundred years ago accounted for the first:
1. Bank interest
2. Paper money
3. Fractional reserve banking
All three
1 & 2 only

12. If you want to adjust for inflation when evaluating an investment, you would rely on the:
Real interest rate
Nominal interest rate
Normalized interest rate

13. Fiscal policy is more effective during an economic downturn while monetary policy is the preferred tool to reign in an over-heated economy.
True
False

14. Do lower interest rates weaken, strengthen, or allow a nation's exchange rate to remain stable?
Strengthen
Weaken
Remain constant

15. Lucy is an avid Disney enthusiast attempting to purchase the company's stock. However, the current stock price is well above her given budget, causing her to withhold her purchases until it reaches a more favorable price level. This phenomenon is known as _______.
The exchange rate
Asset demand for money
A standard of value
Transactions demand

16. A reserve requirement of 12% requires a bank to hold _______ of the $5845 deposited.
$487.08
$708.33
$70.14
$701.40

17. If the US Federal Reserve wanted to lower the long-term interest rates on elastic purchases, such as homes or certain bonds, what course of action would they take in order to achieve the desired outcome?
Raise short-term interest rates
Hike up interest rates
Implement a quantitative easing program
Decrease the money supply in circulation

18. Who controls monetary policy?
The government
The Federal Reserve
Congress
State representatives

19. The discount rate
Is the interest rate the central bank charges various branches for borrowing additional funds
Is the interest rate state officials charge various branches for borrowing additional funds
Is the interest rate banks charge large corporations for borrowing funds

20. What is a contributing factor to the difference in interest rates for elastic goods? Which types of bonds have the lowest risk?
Junk bonds
Government securities
Corporate bonds

21. When you hold cash rather than invest it in stocks or bonds and wait for a better price, such speculation is an example of what kind of demand for money?
1. Asset demand
2. Transactions demand
3. Withdrawal demand
All three
1 & 2 only

22. The key function of a central bank is to
Set the tax rate
Control bank reserves
Dictate the desired MPS to aid in investment purposes

23. Define open market operations and the results from selling bonds.
A. Involves the buying and selling of government securities to contract the money supply
B. Involves the selling and buying of government securities to reduce the money supply
C. Involves the buying of government securities to increase the money supply
D. Involves the buying and selling of government securities to raise interest rates
E. A and D

24. Which of these investments would have the lowest interest paid out?
The bonds of the U.S. government
The bonds of countries with large overseas debt and unstable political systems.
The “junk bonds” of businesses close to bankruptcy
The municipal bonds of cities with shrinking tax bases

25. The Federal Reserve
Is the lender of last resort
Controls the money supply and interest rates
Prevents the occurrence of another bank run similar to the Financial Panic of 1907
All of the above

1. Define interest rate. Price of money Payment made for the use...