M and B 3,3rd Edition by Dean Croushore – Test Bank

1. In the ATM model of money, the opportunity cost of holding money is determined by
a. the rate of inflation.
b. the cost of going to an ATM.
c. the charges levied on every ATM transaction.
d. the nominal interest rate and the possibility of having her money stolen.

ANSWER: d
POINTS: 1
DIFFICULTY: Basic
TOPICS: The ATM Model of the Demand for Cash
OTHER: Factual

2. What is the average cash holdings of someone who visits the ATM once every 8 days and spends $25 on a daily basis?
a. $12.50 b. $25
c. $100 d. $200

ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

3. How much is someone who visits the ATM once every 7 days and has an average cash balance of $70 expected to spend daily?
a. $5 b. $10 c. $15 d. $20

ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

4. Someone who has an average cash balance of $45 and spends $15 per day will visit the ATM once in every days.
a. 4 b. 5 c. 6 d. 7

ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

5. The cost of going to an ATM is $1 in an economy. If the nominal interest rate in the economy is 5 percent, what is the total cost associated with holding cash for an individual who spends $10 daily and has a 15 percent probability of having his cash lost or stolen? Assume that he visits the ATM once in every T days.
a. (182.5/T) + (0.2 × T) b. (182.5/T) + (0.2 × T) c. (365/T) + (0.5 × T)
d. (365/T) + T

ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

6. The cost of going to an ATM is $2 in an economy. If the nominal interest rate in the economy is 1 percent, what is the total cost associated with holding cash for an individual who spends $15 daily and has a 9 percent probability of having his cash lost or stolen? Assume that he visits the ATM once in every T days.
a. (365/T) + (0.75 × T) b. (730/T) + (0.75 × T) c. (730/T) + (1.5 × T) d. (365/T) + (1.5 × T)

ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

7. The nominal interest rate in an economy is 5 percent, and there is also a 15 percent probability of having cash lost or stolen in the economy. Given this information, what is the cost of going to the ATM for an individual who spends $10 daily and has a total cost of holding cash = (365/T) + T. Assume that the individual visits the ATM once in every T days.
a. $1 b. $2 c. $3 d. $4

ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

8. If the cost of going to the ATM in an economy is $1 and the nominal interest rate is 5 percent, someone who spends

$10 each day and has the total cost of holding cash = (365/T) + T, has a stolen. Assume that the individual visits the ATM once in every T days. a. 5 percent
b. 10 percent c. 15 percent d. 20 percent

ANSWER: c
POINTS: 1
DIFFICULTY: Challenging
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

probability of having his cash lost or

9. An individual spends $5 daily and also spends an additional $1.50 each time he goes to an ATM. There is also a 12 percent risk of having his cash lost or stolen. If his total cost of holding cash is (547.50/T) + (0.375 × T), then what is the ongoing nominal interest rate in the economy? Assume that the individual visits the ATM once in every T days.
a. 1 percent. b. 2 percent. c. 3 percent. d. 4 percent.

ANSWER: c
POINTS: 1
DIFFICULTY: Challenging
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual

10. If the nominal interest rate is 3 percent and the cost of going to the ATM is $1.50, someone who has a 12 percent probability of having his cash lost or stolen and has a total cost of holding cash equal to (547.50/T) + (0.375 × T) spends daily. Assume that the individual visits the ATM once in every T days.
a. $20 b. $15 c. $10 d. $5

ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
TOPICS: The ATM Model of the Demand for Cash
OTHER: Conceptual