ECON 201 // FALL 2022 // EXAM #4 PAGE 2 Use the diagram to the right in responding to the next two questions. Let i - the nominal interest rate and Qs - the quantity of money. D', D', and D' represent three demand-for- 12 money curves and SI, S?, and $3 represent 10 three supply-of-money curves. 8 6. A downward-sloping demand-for-money curve (such as DZ) demonstrates that as the interest rate increases, the opportunity cost of holding money: a. Decreases, so the quantity of money demanded decreases. b. Increases, so the quantity of money demanded increases. c. Does not change, so the demand-for-money curve moves to the right. d. Increases, so the quantity of money demanded decreases. e. Decreases, so the quantity of money demanded increases. 7. Assume D2 and $2 are the relevant demand-for-money and the supply-of-money curves, respectively. If the Federal Reserve increases the required reserve ratio (rr) then the supply-of- money curve: a. Remains at $2 as changes in the required reserve ratio do not affect the supply-of-money. b. Moves to S' and the shortage of money is eliminated as the equilibrium interest rate increases to 12%. c. Moves to S' and the surplus of money is eliminated as the equilibrium interest rate decreases to 8%. d. Moves to S' and the shortage of money is eliminated as the equilibrium interest rate increases to 12%. e. Moves to S' and the surplus of money is eliminated as the equilibrium interest rate decreases to 8%. 8. Assume the required reserve ratio is 20 percent (rr = 0.20) and Gabriella deposits $10,000 of cash into her Demand Deposit (DD) account at the Chanticleer National Bank (CNB). The immediate and direct effect of this is that Excess Reserves (ER) of the CNB will and M-1 will and (1) and (4) a. Increase by $8,000; not change. distinguish b. Increase by $10,000; decrease by $10,000. c. Increase by $2,000; not change. d. Increase by $10,000; increase by $1,000. in cash from her ups working savings account at the ABC Bur e. Increase by $8,000; decrease by $10,000. soil / did not change / 9. Assume the economy is in a situation where the current unemployment rate is consistently less than the natural rate of unemployment. The Federal Reserve could try to correct this situation by conducting (an "Easy" / a "Tight") monetary policy, which would (decrease / increase) interest rates, and move the Aggregate Demand (AD) to the (left / right). a. A "Tight"; increase; right. b. An "Easy"; increase; left. c. An "Easy"; decrease; left. of tools is co change ! y supply. The *mos d. An "Easy"; decrease; right. orve can fire involves (changes in the discount rate / open e. A "Tight"; increase; left. (required reserve ralto), The tool Federal Ro 10. Aaron recently sold $100,000 of U.S. Government securities to the Federal Reserve and had the proceeds of the sale deposited into his Demand Deposit account at the West Bank (WB). If the required reserve ratio is (rr=) 0.10 then the M-1 money supply will: a. Increase by $100,000 and the bank's Excess Reserves will increase by $10,000. b. Decrease by $100,000 and the bank's Excess Reserves will increase by $90,000. c. Increase by $100,000 and the bank's Excess Reserves will increase by $100,000. d. Decrease by $100,000 and the bank's Excess Reserves will increase by $10,000. e. Increase by $100,000 and the bank's Excess Reserves will increase by $90,000