SOLVED

11) Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency. Using the money demand and money supply model and assuming everything else is held constant, the equilibrium interest rate should A) increase. B) decrease. C) not change. D) increase, then decrease. 12) Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to A) decrease. B) increase. C) not change. D) increase, then decrease. 13) Which of the following will lead to a decrease in the equilibrium interest rate in the economy? A) an increase in the price level B) a sale of government securities by the Fed C) a decrease in GDP D) an increase in the discount rate E) an increase in the reserve requirement 14) An increase in real GDP can shift A) money demand to the right and decrease the equilibrium interest rate. B) money demand to the right and increase the equilibrium interest rate. C) money demand to the left and decrease the equilibrium interest rate. D) money demand to the left and increase the equilibrium interest rate. 15) When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have A) more money than they want to hold. B) less money than they want to hold. C) the amount of money that they want to hold. D) to sell Treasury bills. 16) When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate households and firms will now want to A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) hold less money. 17) An increase in the demand for Treasury bills will A) increase the price of Treasury bills. B) increase the interest rate on Treasury bills. C) increase the opportunity cost of holding money vs. Treasury bills. D) eventually cause households to hold less money. 18) Which of the following is true? A) The money market model is essentially a model that determines the short-term nominal rate of interest. B) The money market model is essentially a model that determines the short-term real rate of interest. C) The loanable funds model is essentially a model that determines the short-term real rate of interest. D) The loanable funds model is essentially a model that determines the long-term nominal rate of interest. 19) Refer to Figure 17-2.  In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) want to hold less money. 20) Refer to Figure 17-3. In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) want to hold more money.