Question 1

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Accepted Answer

A) Money demand declines first, then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines. 
A) Money demand declines first, then rises when inflation increases. 
B) Money demand rises. 
C) The overall effect is ambiguous. 
D) Money demand declines.

Question 2

Suppose velocity is constant at 4,real output is 10,and the price level is 2.From this initial situation,the government increases the nominal money supply to 6.If velocity and output remain unchanged,by how much will the price level increase?

Accepted Answer

A) 2)4% 
B) 20% 
C) 24% 
D) 50% 
A) 2)4% 
B) 20% 
C) 24% 
D) 50%

Question 3

In some countries,prices in stores are listed in terms of U.S.dollars,rather than in units of the local currency.That's most likely because

Accepted Answer

A) the country's political system is unstable. 
B) interest rates are higher using U.S. dollars than using the local currency. 
C) there is no other store of value. 
D) the country has experienced high rates of inflation. 
A) the country's political system is unstable. 
B) interest rates are higher using U.S. dollars than using the local currency. 
C) there is no other store of value. 
D) the country has experienced high rates of inflation.

Question 4

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

Accepted Answer

A) purchasing government bonds from the public. 
B) selling government bonds to the public. 
C) selling newly issued government bonds directly to the central bank. 
D) buying newly issued government bonds directly from the central bank. 
A) purchasing government bonds from the public. 
B) selling government bonds to the public. 
C) selling newly issued government bonds directly to the central bank. 
D) buying newly issued government bonds directly from the central bank.

Question 5

The use of money is more efficient than barter because the introduction of money

Accepted Answer

A) reduces the need for economic specialization. 
B) reduces the need to exchange goods. 
C) reduces the need for other stores of value. 
D) reduces transaction costs. 
A) reduces the need for economic specialization. 
B) reduces the need to exchange goods. 
C) reduces the need for other stores of value. 
D) reduces transaction costs.

Question 6

Suppose the real money demand function is Md/P = 2400 + 0.2Y - 10,000 (r + πe).
Assume M = 5000,P = 2.0,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 
A) 2 
B) 4 
C) 5 
D) 7

Question 7

If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

Accepted Answer

A) 3)0%. 
B) 3)4%. 
C) 6)6%. 
D) 7)0%. 
A) 3)0%. 
B) 3)4%. 
C) 6)6%. 
D) 7)0%.

Question 8

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

Accepted Answer

A) less risk and less liquidity. 
B) less risk and more liquidity. 
C) more risk and less liquidity. 
D) more risk and more liquidity. 
A) less risk and less liquidity. 
B) less risk and more liquidity. 
C) more risk and less liquidity. 
D) more risk and more liquidity.

Question 9

The uncertainty about the return an asset will earn is

Accepted Answer

A) liquidity. 
B) risk. 
C) time to maturity. 
D) stochastic dominance. 
A) liquidity. 
B) risk. 
C) time to maturity. 
D) stochastic dominance.

Question 10

Which of the following best illustrates the medium of exchange function of money?

Accepted Answer

A) The price of a new car is $25,000. 
B) A penny saved is a penny earned. 
C) A person owes $10,000 on his or her credit card. 
D) You pay $3 to purchase a bag of apples. 
A) The price of a new car is $25,000. 
B) A penny saved is a penny earned. 
C) A person owes $10,000 on his or her credit card. 
D) You pay $3 to purchase a bag of apples.

Question 11

The risk premium is

Accepted Answer

A) the amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset. 
B) a measure of the riskiness of the overall economy in a domestic country compared with a foreign country. 
C) the amount an investor must pay to insure his or her stock portfolio to protect against a fall in value. 
D) the amount an investment bank charges to guarantee an annuity that pays a fixed rate of return in the future. 
A) the amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset. 
B) a measure of the riskiness of the overall economy in a domestic country compared with a foreign country. 
C) the amount an investor must pay to insure his or her stock portfolio to protect against a fall in value. 
D) the amount an investment bank charges to guarantee an annuity that pays a fixed rate of return in the future.

Question 12

The following are all functions of money except

Accepted Answer

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

Question 13

If the asset market is in equilibrium,the growth rate of the nominal money supply minus the growth rate of real money demand equals

Accepted Answer

A) the real interest rate. 
B) the inflation rate. 
C) the price level. 
D) the growth rate of real output. 
A) the real interest rate. 
B) the inflation rate. 
C) the price level. 
D) the growth rate of real output.

Question 14

Suppose the real money demand function is Md/P = 2400 + 0.2Y - 10,000 (r + πe).
Assume M = 5000,πe = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md,πe,and Y are unchanged)?

Accepted Answer

A) 4 
B) 5 
C) 9 
D) 14 
A) 4 
B) 5 
C) 9 
D) 14

Question 15

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

Question 16

What's the most common way for a central bank to reduce the money supply?

Accepted Answer

A) Collect higher taxes 
B) Sell bonds to the public 
C) Buy bonds from the government 
D) Buy bonds from the public 
A) Collect higher taxes 
B) Sell bonds to the public 
C) Buy bonds from the government 
D) Buy bonds from the public

Question 17

People's best guesses about returns on assets are called

Accepted Answer

A) expected returns. 
B) liquidity. 
C) risk. 
D) the term structure of returns. 
A) expected returns. 
B) liquidity. 
C) risk. 
D) the term structure of returns.

Question 18

If the nominal money supply doubles while real money demand is unchanged,what happens to the price level?

Accepted Answer

A) The price level increases by a factor of four. 
B) The price level doubles. 
C) The price level is unchanged. 
D) The price level falls by one-half. 
A) The price level increases by a factor of four. 
B) The price level doubles. 
C) The price level is unchanged. 
D) The price level falls by one-half.

Question 19

Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?

Accepted Answer

A) An increase in real income of 0.5% 
B) A decrease in real income of 0.5% 
C) A decline of 1% in the price level 
D) An increase of 1% in the price level 
A) An increase in real income of 0.5% 
B) A decrease in real income of 0.5% 
C) A decline of 1% in the price level 
D) An increase of 1% in the price level

Question 20

You are putting together a portfolio of assets.The four most important characteristics of the assets you will choose are expected return,time to maturity,

Accepted Answer

A) risk, and liquidity. 
B) risk, and collateral 
C) risk, and reward. 
D) liquidity, and standard issue size. 
A) risk, and liquidity. 
B) risk, and collateral 
C) risk, and reward. 
D) liquidity, and standard issue size.

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Suppose velocity is constant at 4,real output is 10,and the price level is 2.From this initial situation,the government increases the nominal money supply to 6.If velocity and output remain unchanged,by how much will the price level increase?

In some countries,prices in stores are listed in terms of U.S.dollars,rather than in units of the local currency.That's most likely because

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

The use of money is more efficient than barter because the introduction of money

Suppose the real money demand function is M^d/P = 2400 + 0.2Y - 10,000 (r + π^e). Assume M = 5000,P = 2.0,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?

If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

The uncertainty about the return an asset will earn is

Which of the following best illustrates the medium of exchange function of money?

The risk premium is

The following are all functions of money except

If the asset market is in equilibrium,the growth rate of the nominal money supply minus the growth rate of real money demand equals

Suppose the real money demand function is M^d/P = 2400 + 0.2Y - 10,000 (r + π^e). Assume M = 5000,π^e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming M^d,π^e,and Y are unchanged)?

Velocity is defined as

What's the most common way for a central bank to reduce the money supply?

People's best guesses about returns on assets are called

If the nominal money supply doubles while real money demand is unchanged,what happens to the price level?

Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?

You are putting together a portfolio of assets.The four most important characteristics of the assets you will choose are expected return,time to maturity,

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 7: The Asset Market, money, and Prices

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Suppose velocity is constant at 4,real output is 10,and the price level is 2.From this initial situation,the government increases the nominal money supply to 6.If velocity and output remain unchanged,by how much will the price level increase?

In some countries,prices in stores are listed in terms of U.S.dollars,rather than in units of the local currency.That's most likely because

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

The use of money is more efficient than barter because the introduction of money

Suppose the real money demand function is Md/P = 2400 + 0.2Y - 10,000 (r + πe). Assume M = 5000,P = 2.0,and πe = .03.If Y were to increase from 4000 to 5000,then the real interest rate would increase by how many percentage points?

If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

AAA Company stock has a higher expected rate of return than ZZZ Company stock.All else being equal,you would expect that relative to ZZZ,AAA company stock provides

The uncertainty about the return an asset will earn is

Which of the following best illustrates the medium of exchange function of money?

The risk premium is

The following are all functions of money except

If the asset market is in equilibrium,the growth rate of the nominal money supply minus the growth rate of real money demand equals

Suppose the real money demand function is Md/P = 2400 + 0.2Y - 10,000 (r + πe). Assume M = 5000,πe = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md,πe,and Y are unchanged)?

Velocity is defined as

What's the most common way for a central bank to reduce the money supply?

People's best guesses about returns on assets are called

If the nominal money supply doubles while real money demand is unchanged,what happens to the price level?

Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?

You are putting together a portfolio of assets.The four most important characteristics of the assets you will choose are expected return,time to maturity,

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Suppose the real money demand function is M^d/P = 2400 + 0.2Y - 10,000 (r + π^e). Assume M = 5000,P = 2.0,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?

Suppose the real money demand function is M^d/P = 2400 + 0.2Y - 10,000 (r + π^e). Assume M = 5000,π^e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming M^d,π^e,and Y are unchanged)?