1. If the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity demanded of money will ______.*

a. remain unchanged; remain unchanged

b. increase; increase

c. decrease; increase

d. increase; decrease

2. The money demand curve shows the relationship between the:*

a. the money supply and the quantity of money demanded.

b. aggregate price level and the nominal quantity of money demanded.

c. nominal interest rate and the quantity of money demanded.

d. real GDP and the nominal quantity of money demanded.

3. A decrease in the demand for money would result from:*

a. an increase in income.

b. an increase in real GDP.

c. a decrease in the price level.

d. an increase in nominal GDP.

4. If inflation increases from 2% to 5%, the money demand curve will:*

a. remain constant, but the quantity of money demanded will increase.

b. remain constant, but the quantity of money demanded will decrease.

c. shift to the left.

d. shift to the right.

5. Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect:*

a. the money demand curve to shift left.

b. the money demand curve to shift right.

c. a downward movement along a fixed money demand curve.

d. an upward movement along a fixed money demand curve.

6. An increase in the demand for money, with no change in the supply of money, will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium interest rate.*

a. no change; an increase

b. no change; a decrease

c. a decrease; an increase

d. an increase; a decrease

7. The fact that most stores and retailers in the United States have found it beneficial to now accept credit cards has:*

a. increased the demand for money.

b. decreased the demand for money.

c. increased the demand for credit card transactions but has had no impact on the demand for money.

d. decreased the demand for credit card transactions but has had no impact on the demand for money.

8. The demand for loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds.*

a. downward; investors (borrowers); increasing

b. downward; savers; increasing

c. upward; investors (borrowers); decreasing

d. upward; savers; decreasing

9. In the market for loanable funds, suppose the current interest rate is 5%. At a rate of 5%, investors wish to borrow $100 million and savers wish to save $125 million. We would expect the interest rate to:*

a. fall as there is currently a shortage of loanable funds.

b. rise as there is currently a surplus of loanable funds.

c. rise as there is currently a shortage of loanable funds.

d. fall as there is currently a surplus of loanable funds.

10. Crowding out is a phenomenon where:*

a. an increase in the government's budget surplus decreases overall investment spending.

b. overproduction in the goods market leads to a sharp drop in price level.

c. an increase in government spending causes an equal decrease in consumption spending.

d. an increase in the government's budget deficit causes investment spending to fall.