Question 1

If real GDP is $4 billion,the price level is 1.25,and the nominal money stock is $500 million,then velocity is

Accepted Answer

A) 0)1. 
B) 1) 
C) 10. 
D) 100. 
A) 0)1. 
B) 1) 
C) 10. 
D) 100.

Question 2

We shouldn't be concerned about U.S.currency held abroad because

Accepted Answer

A) the currency will never return to the United States. 
B) foreigners use it to buy U.S. bonds. 
C) it represents an interest-free loan to the United States. 
D) foreigners can't spend it in their own countries. 
A) the currency will never return to the United States. 
B) foreigners use it to buy U.S. bonds. 
C) it represents an interest-free loan to the United States. 
D) foreigners can't spend it in their own countries.

Question 3

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

Accepted Answer

A) there is one unit of account. 
B) the goods all weigh about the same. 
C) the goods are all new. 
D) the goods are actively traded through barter. 
A) there is one unit of account. 
B) the goods all weigh about the same. 
C) the goods are all new. 
D) the goods are actively traded through barter.

Question 4

Suppose the money demand function is
Md/P = 1000 + 0.2Y - 1000 (r + πe).
(a)Calculate velocity if Y = 2000,r = .06,and πe = .04.
(b)If the money supply (Ms)is 2600,what is the price level?
(c)Now suppose the real interest rate rises to 0.11,but Y and Ms are unchanged.What happens to velocity and the price level? So if the nominal interest rate were to rise from 0.10 to 0.15 over the course of a year,with Y remaining at 2000,what would the inflation rate be?

Accepted Answer

(a)V = PY/M = Y/(M/P).From the money dem

Question 5

When a government prints money to finance its expenditures,it is likely to cause

Accepted Answer

A) unemployment. 
B) inflation. 
C) deflation. 
D) reductions in the use of barter. 
A) unemployment. 
B) inflation. 
C) deflation. 
D) reductions in the use of barter.

Question 6

Assume that prices and wages adjust rapidly so that the markets for labor,goods,and assets are always in equilibrium.What are the effects of each of the following on output,the expected real interest rate,and the current price level?
(a)a temporary increase in taxes
(b)a reduction in the effective tax rate on capital
(c)an increase in expected inflation

Accepted Answer

(a)Under Ricardian equivalence,no effect

Question 7

The most likely explanation for the high inflation rates that countries like Russia and the Ukraine have suffered is that

Accepted Answer

A) large inflows of foreign funds increase the money supply, causing inflation. 
B) without inflation, these countries would be unable to achieve high rates of growth. 
C) borrowing from the central bank is the most expedient method of funding the government's expenditures. 
D) the flood of financial innovations has increased liquidity in these nations' economies. 
A) large inflows of foreign funds increase the money supply, causing inflation. 
B) without inflation, these countries would be unable to achieve high rates of growth. 
C) borrowing from the central bank is the most expedient method of funding the government's expenditures. 
D) the flood of financial innovations has increased liquidity in these nations' economies.

Question 8

Which of the following is most likely to lead to a decrease of 10% in the nominal demand for money?

Accepted Answer

A) An increase in real income of 5% 
B) A decrease in real income of 5% 
C) A decline of 10% in the price level 
D) An increase of 10% in the price level 
A) An increase in real income of 5% 
B) A decrease in real income of 5% 
C) A decline of 10% in the price level 
D) An increase of 10% in the price level

Question 9

Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?

Accepted Answer

A) Money demand rises proportionately to the rise in wealth. 
B) Money demand rises, but less than proportionately to the rise in wealth. 
C) The overall effect is ambiguous. 
D) Money demand declines. 
A) Money demand rises proportionately to the rise in wealth. 
B) Money demand rises, but less than proportionately to the rise in wealth. 
C) The overall effect is ambiguous. 
D) Money demand declines.

Question 10

Suppose the real money demand function is Md/P = 2400 + 0.2Y - 10,000 (r + πe).
Assume M = 4000,P = 2.0,πe = .03,and Y = 5000.The real interest rate that clears the asset market is

Accepted Answer

A) 3%. 
B) 6%. 
C) 11%. 
D) 14%. 
A) 3%. 
B) 6%. 
C) 11%. 
D) 14%.

Question 11

The set of assets that a holder of wealth chooses to own is called

Accepted Answer

A) an asset assortment. 
B) a wealth strategy. 
C) a portfolio. 
D) an investment envelope. 
A) an asset assortment. 
B) a wealth strategy. 
C) a portfolio. 
D) an investment envelope.

Question 12

Mr.Pierpont has wealth of $200,000.He wants to keep at least $80,000 in bonds at all times,and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account.If the interest rate on checking accounts is 4% and the interest rate on bonds is 9%,how much does Mr.Pierpont keep in his checking account?

Accepted Answer

A) $50,000 
B) $70,000 
C) $130,000 
D) $150,000 
A) $50,000 
B) $70,000 
C) $130,000 
D) $150,000

Question 13

Which of these variables is not a variable in the equation for the asset market equilibrium condition?

Accepted Answer

A) Saving 
B) Expected rate of inflation 
C) Real interest rate 
D) Real income 
A) Saving 
B) Expected rate of inflation 
C) Real interest rate 
D) Real income

Question 14

By spreading her investments out over many different assets,an investor achieves

Accepted Answer

A) a higher expected return. 
B) increased risk. 
C) diversification. 
D) greater liquidity. 
A) a higher expected return. 
B) increased risk. 
C) diversification. 
D) greater liquidity.

Question 15

What happens to real money demand (rise,fall,no change)due to a change in each of the following factors?
(a)A tax on stock market transactions is introduced.
(b)Computerized bond trading reduces transactions costs.
(c)People's average level of wealth rises.
(d)The threat of a recession increases the riskiness of stocks and bonds.
(e)The interest rate paid on checking account balances declines.
(f)The price level falls in a one-time jump.

Accepted Answer

(a)Rises
(b)Falls
(c

Question 16

If real money demand doubles while the nominal money supply 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 17

Over half of U.S.currency is

Accepted Answer

A) held abroad. 
B) used in the underground economy. 
C) held by banks as reserves. 
D) held by businesses, especially retailers, for making transactions. 
A) held abroad. 
B) used in the underground economy. 
C) held by banks as reserves. 
D) held by businesses, especially retailers, for making transactions.

Question 18

A 10% decrease in real income usually leads to ________ in money demand.

Accepted Answer

A) an increase 
B) no change 
C) a decrease of less than 10% 
D) a decrease of 10% 
A) an increase 
B) no change 
C) a decrease of less than 10% 
D) a decrease of 10%

Question 19

Which of these variables is not a variable in the equation for the asset market equilibrium condition?

Accepted Answer

A) Nominal money supply 
B) Price level 
C) Real income 
D) Investment 
A) Nominal money supply 
B) Price level 
C) Real income 
D) Investment

Question 20

If the income elasticity of money demand is 3/4 and the interest elasticity of money demand 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% 
A) 7)50% 
B) 6)25% 
C) 5)00% 
D) 1)25%

If real GDP is $4 billion,the price level is 1.25,and the nominal money stock is $500 million,then velocity is

We shouldn't be concerned about U.S.currency held abroad because

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

When a government prints money to finance its expenditures,it is likely to cause

The most likely explanation for the high inflation rates that countries like Russia and the Ukraine have suffered is that

Which of the following is most likely to lead to a decrease of 10% in the nominal demand for money?

Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?

Suppose the real money demand function is M^d/P = 2400 + 0.2Y - 10,000 (r + π^e). Assume M = 4000,P = 2.0,π^e = .03,and Y = 5000.The real interest rate that clears the asset market is

The set of assets that a holder of wealth chooses to own is called

Which of these variables is not a variable in the equation for the asset market equilibrium condition?

By spreading her investments out over many different assets,an investor achieves

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

Over half of U.S.currency is

A 10% decrease in real income usually leads to ________ in money demand.

Which of these variables is not a variable in the equation for the asset market equilibrium condition?

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

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 real GDP is $4 billion,the price level is 1.25,and the nominal money stock is $500 million,then velocity is

We shouldn't be concerned about U.S.currency held abroad because

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

When a government prints money to finance its expenditures,it is likely to cause

The most likely explanation for the high inflation rates that countries like Russia and the Ukraine have suffered is that

Which of the following is most likely to lead to a decrease of 10% in the nominal demand for money?

Over time,the wealth of society increases and payments technologies get more efficient.What is the effect on money demand of these two changes?

Suppose the real money demand function is Md/P = 2400 + 0.2Y - 10,000 (r + πe). Assume M = 4000,P = 2.0,πe = .03,and Y = 5000.The real interest rate that clears the asset market is

The set of assets that a holder of wealth chooses to own is called

Which of these variables is not a variable in the equation for the asset market equilibrium condition?

By spreading her investments out over many different assets,an investor achieves

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

Over half of U.S.currency is

A 10% decrease in real income usually leads to ________ in money demand.

Which of these variables is not a variable in the equation for the asset market equilibrium condition?

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

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 = 4000,P = 2.0,π^e = .03,and Y = 5000.The real interest rate that clears the asset market is