Question : 11.2   The Demand for Money 1) At higher interest rates the A) : 1381448

11.2   The Demand for Money

1) At higher interest rates the

A) money supply is higher.

B) money supply is indeterminate.

C) quantity of money demanded is higher.

D) quantity of money demanded is lower.

2) Violet’s income is $3,200 a month. She deposits $600 in a saving account, buys $700 worth of government securities, and leaves the rest for daily transactions. Violet’s money demand is

A) $1,900.

B) $2,500.

C) $2,600.

D) $4,500.

3) Ingrid is paid on the 1st of every month and her car payment is due on the 10th of every month. This is an example of the

A) financial float.

B) nonsynchronization of income and spending.

C) money management problem.

D) cash flow problem.

4) The average monthly balance in Frank’s bank account is $1,200. Frank spends the same amount of money each day during the month and at the end of the month his account balance is $0. Frank’s monthly starting balance is

A) $600.

B) $1,200.

C) $1,800.

D) $2,400.

5) The average monthly balance in Angela’s bank account is $6,000. Angela spends the same amount of money each day during the month, and at the end of the month her account balance is $0. Angela’s monthly starting balance is

A) $3,000.

B) $6,000.

C) $9,000.

D) $12,000.

6) The average monthly balance in Simon’s bank account is $1,500. Simon spends the same amount of money each day during a 30-day month, and at the end of the month his account balance is $0. Simon spends his money at a constant rate of ________ per day.

A) $40

B) $50

C) $100

D) $120

7) The average monthly balance in Alice’s bank account is $1,200. Alice spends the same amount of money each day during a 30-day month, and at the end of the month her account balance is $0. Alice spends her money at a constant rate of ________ per day.

A) $40

B) $60

C) $80

D) $120

8) Simon’s monthly starting balance is $5,000. Simon spends $300 per day. Initially, Simon keeps all of his income in a non interest-bearing checking account. Simon decided to change his strategy and at the beginning of each month he deposits one-third of his income into his checking account and buys two bonds with the remainder of his income. After 10 days he cashes in one bond and after 10 days after that he cashes in the other bond. Which of the following statements is true?

A) If Simon uses either strategy, his average monthly balance is $2,500.

B) The second strategy involves lower money management costs because Simon now earns interest on the bonds he has purchased.

C) Simon’s optimal money balance is $300.

D) If the interest rate paid on bonds increases, the opportunity cost of Simon’s original strategy is increased.

9) A decrease in the interest rate will

A) have no impact on the optimal money balance.

B) increase the optimal money balance.

C) lower the optimal money balance.

D) either increase or decrease the optimal money balance depending on the level of current household wealth.

10) John’s optimal money balance has decreased. This could have been caused by

A) an increase in the costs paid for switching from bonds to money.

B) an increase in the price of bonds.

C) an increase in the amount of transactions spending.

D) an increase in the interest rate.