Question 1

Although rapid money growth causes inflation, some countries keep increasing their money growth. We can explain this by noting that

Accepted Answer

A)   inflation in those countries is low enough to be ignored by the policy makers.
B)   printing money is the only and easy way to finance the government expenditures in those countries.
C)   in rich countries inflation does not hurt the economy.
D)   policy makers do not know the relationship between inflation and money growth.

Question 2

A good that is used as a medium of exchange as well as being a consumption good is called

Accepted Answer

A)   a barter money.
B)   a commodity money.
C)   a legal tender.
D)   a debased money.

Question 3

M2 does not include

Accepted Answer

A)   Treasury bonds.
B)   passbook savings accounts.
C)   small-denomination time deposits.
D)   M1.

Question 4

Personal fixed-term savings deposits are included in M2+ rather than M1 because

Accepted Answer

A)   they are available only to institutions, not to individuals.
B)   they can be used as a medium of exchange, but are not as useful as the components of M1 as a store of value.
C)   they can be used as a medium of exchange, but are less useful because of restrictions on their use for transactions.
D)   they can easily be turned into cash for transaction purposes, but cannot be used directly as a medium of exchange.

Question 5

The following are all functions of money except

Accepted Answer

A)   medium of exchange.
B)   store of value.
C)   source of anxiety.
D)   unit of account.

Question 6

If nominal GDP is $500 billion, real GDP is $250 billion, and the nominal money stock is $100 billion, then velocity is

Accepted Answer

A)   2.
B)   2.5.
C)   5.
D)   10.

Question 7

Suppose velocity is constant at 3, real output is 6000, and the price level is 20. From this initial situation, the government increases the nominal money supply to $50,000. If velocity and output remain unchanged, by how much will the price level increase?

Accepted Answer

A)   10%
B)   20%
C)   25%
D)   50%

Question 8

If the income elasticity of money demand is 3/4 and income increases 8%, by about how much does the price level change?

Accepted Answer

A)   falls 6%
B)   unchanged
C)   rises 6%
D)   rises 8%

Question 9

Velocity is defined as

Accepted Answer

A)   nominal money stock/nominal GDP.
B)   nominal GDP/nominal money stock.
C)   real money stock/real GDP.
D)   E = mc2.

Question 10

You are putting together a portfolio of assets. The three most important characteristics of the assets you will choose are

Accepted Answer

A)   expected return, risk, and liquidity.
B)   expected return, risk, and collateral.
C)   expected return, risk, and maturity.
D)   expected return, liquidity, and maturity.

Question 11

Suppose the real money demand function is Md/P = 2000 + 0.2Y - 10,000 (i - im) . Assume M = 5000, P = 2.0, im = .04, and πe = .03. If Y were to increase from 4000 to 5000, then the real interest rate would increase by how many percentage points?

Accepted Answer

A)   2
B)   4
C)   5
D)   7

Question 12

Which of the following is the most likely explanation for the causes behind the fall in the demand for M1 in the 1970s?

Accepted Answer

A)   Higher prices in the 1970s reduced the demand for money.
B)   Government deficits increased the demand for money, draining it out of the private sector.
C)   Financial innovations, such as money market mutual funds, changed the demand for narrow definitions of money such as M1.
D)   Increases in Eurodollar deposits drew money out of the banking system.

Question 13

Which of the following is not part of M1?

Accepted Answer

A)   currency
B)   personal chequing accounts
C)   personal savings deposits
D)   current accounts

Question 14

Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money demand is -0.2. By what percentage does real money demand change in each of the following circumstances?
a. Income rises 2%.
b. The interest rate rises from 4% to 5%.
c. Income falls 4%.
d. The interest rate falls from 6% to 4%.
e. Income rises 3% at the same time that the interest rate rises from 2% to 3%.

Accepted Answer

Use the formula %△m^d ...

Question 15

If real money demand increases 5% and real money supply increases 10%, by about how much does the price level change?

Accepted Answer

A)   falls 5%
B)   unchanged
C)   rises 2%
D)   rises 5%

Question 16

If the income elasticity of money demand is 3/4 and the interest elasticity of money demands is -1/4, by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?

Accepted Answer

A)   7.50%
B)   6.25%
C)   5.00%
D)   1.25%

Question 17

In some countries the U.S. dollar is used as a unit of account rather than the local currency. The primary reason for this is that

Accepted Answer

A)   the nation has been running a trade surplus.
B)   the nation has been running a trade deficit.
C)   the U.S. inflation rate is higher than the local inflation rate.
D)   U.S. dollars reduce the need to change prices frequently.

Question 18

Which of the following is true about velocity?

Accepted Answer

A)   Velocity is constant.
B)   M1 Velocity is more stable than M2 velocity.
C)   M2 velocity is more stable than M1 velocity.
D)   All else equal, velocity increases as demand for money rises.

Question 19

Which of the following types of money is more liquid?

Accepted Answer

A)   M1
B)   M2+
C)   M3
D)   Currency

Exam 7: The Asset Market, Money, and Prices

Which of the following is the most likely explanation for the causes behind the fall in the demand for M1 in the 1970s?

Correct Answer
verified

Suppose the real money demand function is M^d/P = 2000 + 0.2Y - 10,000^{(i - i}^m⁾. Assume M = 5000, P = 2.0, i^m = .04, and π^e = .03. If Y were to increase from 4000 to 5000, then the real interest rate would increase by how many percentage points?

Correct Answer
verified

Which of the following is true about velocity?

Correct Answer
verified

Which of the following is not part of M1?

Correct Answer
verified

If the income elasticity of money demand is 3/4 and income increases 8%, by about how much does the price level change?

Correct Answer
verified

Which of the following types of money is more liquid?

Correct Answer
verified

If the income elasticity of money demand is 3/4 and the interest elasticity of money demands is -1/4, by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?

Correct Answer
verified

Personal fixed-term savings deposits are included in M2+ rather than M1 because

Correct Answer
verified

A good that is used as a medium of exchange as well as being a consumption good is called

Correct Answer
verified

You are putting together a portfolio of assets. The three most important characteristics of the assets you will choose are

Correct Answer
verified

Suppose velocity is constant at 3, real output is 6000, and the price level is 20. From this initial situation, the government increases the nominal money supply to $50,000. If velocity and output remain unchanged, by how much will the price level increase?

Correct Answer
verified

Correct Answer
verified
Use the formula %△m^d ...
View Answer

Velocity is defined as

Correct Answer
verified

M2 does not include

Correct Answer
verified

Although rapid money growth causes inflation, some countries keep increasing their money growth. We can explain this by noting that

Correct Answer
verified

If nominal GDP is $500 billion, real GDP is $250 billion, and the nominal money stock is $100 billion, then velocity is

Correct Answer
verified

If real money demand increases 5% and real money supply increases 10%, by about how much does the price level change?

Correct Answer
verified

In some countries the U.S. dollar is used as a unit of account rather than the local currency. The primary reason for this is that

Correct Answer
verified

The following are all functions of money except

Correct Answer
verified

Exam 7: The Asset Market, Money, and Prices

Which of the following is the most likely explanation for the causes behind the fall in the demand for M1 in the 1970s?

Correct AnswerverifiedShow Answer

Suppose the real money demand function is Md/P = 2000 + 0.2Y - 10,000 (i - im) . Assume M = 5000, P = 2.0, im = .04, and πe = .03. If Y were to increase from 4000 to 5000, then the real interest rate would increase by how many percentage points?

Correct AnswerverifiedShow Answer

Which of the following is true about velocity?

Correct AnswerverifiedShow Answer

Which of the following is not part of M1?

Correct AnswerverifiedShow Answer

If the income elasticity of money demand is 3/4 and income increases 8%, by about how much does the price level change?

Correct AnswerverifiedShow Answer

Which of the following types of money is more liquid?

Correct AnswerverifiedShow Answer

If the income elasticity of money demand is 3/4 and the interest elasticity of money demands is -1/4, by what percent does money demand rise if income rises 10% and the nominal interest rate rises from 4% to 5%?

Correct AnswerverifiedShow Answer

Personal fixed-term savings deposits are included in M2+ rather than M1 because

Correct AnswerverifiedShow Answer

A good that is used as a medium of exchange as well as being a consumption good is called

Correct AnswerverifiedShow Answer

You are putting together a portfolio of assets. The three most important characteristics of the assets you will choose are

Correct AnswerverifiedShow Answer

Suppose velocity is constant at 3, real output is 6000, and the price level is 20. From this initial situation, the government increases the nominal money supply to $50,000. If velocity and output remain unchanged, by how much will the price level increase?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUse the formula %△md ...View AnswerShow Answer

Velocity is defined as

Correct AnswerverifiedShow Answer

M2 does not include

Correct AnswerverifiedShow Answer

Although rapid money growth causes inflation, some countries keep increasing their money growth. We can explain this by noting that

Correct AnswerverifiedShow Answer

If nominal GDP is $500 billion, real GDP is $250 billion, and the nominal money stock is $100 billion, then velocity is

Correct AnswerverifiedShow Answer

If real money demand increases 5% and real money supply increases 10%, by about how much does the price level change?

Correct AnswerverifiedShow Answer

In some countries the U.S. dollar is used as a unit of account rather than the local currency. The primary reason for this is that

Correct AnswerverifiedShow Answer

The following are all functions of money except

Correct AnswerverifiedShow Answer

Correct Answer
verified

Suppose the real money demand function is M^d/P = 2000 + 0.2Y - 10,000^{(i - i}^m⁾. Assume M = 5000, P = 2.0, i^m = .04, and π^e = .03. If Y were to increase from 4000 to 5000, then the real interest rate would increase by how many percentage points?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Use the formula %△m^d ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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