Exam 8: Money, the Price Level, and Inflation

What assets are included in M1? In M2? Is all of M1 and M2 money? If some assets of M1 or M2 are not money, why are they included in M1 or M2?

"The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?

In the United States, the demand curve for M1 after 1970 shifted leftward as a result of and shifted rightward as a result of .

Suppose you cash in a Certificate of Deposit (a small time deposit) to acquire the traveler's checks you'll need for your vacation. What happens to M1 and M2?

According to the quantity theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in .

Banks create money whenever they

The fact that money can be exchanged for goods reflects money's role as a

Which of the following best describes the chain of events in the money creation process?

If real GDP decreases, the demand for money curve will shift

Friedmania is a country in which the quantity theory of money operates. The country has a constant population, capital stock, and technology so real GDP does not change. In 2008, real GDP was $500 million, the price level, measured by the GDP deflator, was 150 and the velocity of circulation of money was 10. (Because the price level is measured by the GDP deflator, it must be divided by 100 before it is used in the equation of exchange.) In 2009 the quantity of money increased by 20 percent. a) What was the quantity of money in 2008? b) What was the velocity of circulation in 2009? c) What was the price level in 2009?

Which of the following is a service of depository institutions?

The equation of exchange states that the price level is equal to

In the United States, the central bank is the _ _.

-According to the table above, the value of M1 is and the value of M2 is .

The main policy- making organization of the Federal Reserve System is the _ .

Changing which of the following is a Federal Reserve monetary policy tool?

-In the above figure, suppose the economy is initially on the demand for money curve MD₁. What is the effect of a fall in the interest rate?

The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of its reserves?

-In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

Explain how a currency drain affects the size of the money multiplier. In your explanation, suppose that a bank gains $1 million in new deposits and reserves. Further suppose that the desired reserve ratio is 10 percent and the currency drain is 50 percent.