Exam 8: Money, the Price Level, and Inflation

Which of the following allow banks to minimize the cost to a business of borrowing? I. Borrowing long and lending short II. Raising funds from a large number of depositors III. Creating money by lending all their reserves

According to the quantity theory of money, what is the effect of an increase in the quantity of money?

A currency drain occurs because people want to hold some of their money as currency rather than as deposits.

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

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 2014, 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 2015, the quantity of money increased by 20 percent. a) What was the quantity of money in 2014? b) What was the velocity of circulation in 2015? c) What was the price level in 2015?

The practice of borrowing short and lending long

-In the figure above, if the interest rate is 6 percent

Depository institutions do all of the following EXCEPT

According to the quantity theory of money, changes in the price level are the result of changes in the

The chairman of the Federal Reserve's Board of Governors

Which of the following applies to the use of money as a unit of account? I. A unit of account is an agreed measure for stating the prices of goods and services. II. Using money as a unit of account creates a simplified pricing system. III. Economies choose many goods as units of account.

In the short run, which of the following actions raises the interest rate?

Of the following, the riskiest assets held by commercial banks are

The Federal Open Market Committee (FOMC)

Which of the following is NOT a part of the monetary base?

Define the quantity theory of money and show how it is related to the equation of exchange.

Which of the following is TRUE regarding the quantity theory of money? I. The theory predicts that in the long run the inflation rate equals the money growth rate minus the Growth rate of real GDP. II. The theory predicts that countries with high growth rates of money will have high inflation rates. III. The theory predicts that increases in the growth rate of the velocity of circulation lowers the Inflation rate.

Explain how the money market determines the equilibrium interest rate.

How are the nominal and real demands for money related to changes in the price level?

"Banks hold 100 percent of their customers' deposits as reserves." Is the previous statement correct or not?