Question : 11.2   The Demand for Money 1) Veronica’s income $4,000 a month. : 1381160

 

11.2   The Demand for Money

 

1) Veronica’s income is $4,000 a month. She deposits $800 in a saving account, buys $300 worth of government securities, and leaves the rest for daily transactions. Veronica’s transaction money demand is

A) $2,900.

B) $3,200.

C) $3,700.

D) $5,100.

 

2) Mary is paid on the 1st of every month and her rent is due on the 15th of every month. This is an example of the

A) cash flow problem.

B) financial float.

C) money management problem.

D) nonsynchronization of income and spending.

 

3) The average monthly balance in Tony’s bank account is $650. Tony spends the same amount of money each day during the month and at the end of the month his account balance is $0. Tony’s monthly starting balance is

A) $1,300.

B) $975.

C) $650.

D) $21.67.

4) The average monthly balance in Aaron’s bank account is $2,000. Aaron spends the same amount of money each day during the month, and at the end of the month his account balance is $0. Aaron’s monthly starting balance is

A) $2,000.

B) $3,500.

C) $4,000.

D) $6,000.

 

5) The average monthly balance in Yolanda’s bank account is $1,800. Yolanda 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. Yolanda spends her money at a constant rate of ________ per day.

A) $60

B) $120

C) $180

D) $360

 

6) The average monthly balance in Bobby’s bank account is $3,000. Bobby 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. Bobby spends his money at a constant rate of ________ per day.

A) $75

B) $100

C) $200

D) $300

7) Ed’s monthly starting balance is $3,000. Ed spends $100 per day. Initially, Ed keeps all of his income in a non-interest-bearing checking account. Ed 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 10 days after that he cashes in the other bond. Which of the following statements is TRUE?

A) If Ed uses either strategy, his average monthly balance is $1,500.

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

C) Ed’s optimal money balance is $100.

D) If the interest rate paid on bonds decreases, the opportunity cost of Ed’s original strategy is reduced.

 

8) An increase 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.

 

9) John’s optimal money balance has increased. This could have been caused by

A) a reduction in the costs paid for switching from bonds to money.

B) a decrease in the price of bonds.

C) a decrease in the amount of transactions spending.

D) a decrease in the interest rate.

10) Lisa’s optimal monetary balance has decreased. This could have been caused by

A) an increase in the amount of transactions spending.

B) a decrease in the interest rate.

C) a reduction in the costs paid for switching from bonds to money.

D) an increase in the price of bonds.

 

 

 

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