Question 1

Suppose velocity is 3,real output is 9000,and the price level is 1.5.What is the level of real money demand in this economy?

Accepted Answer

A) 2000 
B) 3000 
C) 6000 
D) 30,000 
A) 2000 
B) 3000 
C) 6000 
D) 30,000

Question 2

The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because

Accepted Answer

A) the expectations theory doesn't account for taxes. 
B) a risk premium exists. 
C) an inflation premium must be added to long-term bonds. 
D) the Fed can only control short-term interest rates. 
A) the expectations theory doesn't account for taxes. 
B) a risk premium exists. 
C) an inflation premium must be added to long-term bonds. 
D) the Fed can only control short-term interest rates.

Question 3

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 4

Suppose the real interest rate is 4% and the expected inflation rate is 3%.If the money supply increases by 10% and output,the real interest rate,and the expected inflation rate are unchanged,then the price level increases by

Accepted Answer

A) 3%. 
B) 4%. 
C) 7%. 
D) 10%. 
A) 3%. 
B) 4%. 
C) 7%. 
D) 10%.

Question 5

Which of the following measures is the best measure of money as a medium of exchange?

Accepted Answer

A) M1 
B) M2 
C) M3 
D) None of the above 
A) M1 
B) M2 
C) M3 
D) None of the above

Question 6

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 7

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 8

Suppose the money demand function is given by
Md/P = 640 + 0.1Y - 5000 (r + ?e).
Suppose the central bank changes the nominal money supply depending on income and inflation:
Ms = 1000 + 0.1Y - 4000?.
(a)If expected inflation equals actual inflation = 0.03,Y = 1000,and r = 0.02,calculate the price level.
(b)If inflation rises to 0.04 while the other variables remain as in part a,calculate the price level.
(c)If expected inflation rises to 0.04 while the other variables remain as in part a,calculate the price level.
(d)If the real interest rate rises to 0.03 while the other variables remain as in part a,calculate the price level.

Accepted Answer

Plug in the value of Y and use text Eq.(

Question 9

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 10

Which of the following statements about M1 and M2 is not true?

Accepted Answer

A) Transaction accounts are part of M1. 
B) M2 is more liquid than M1. 
C) M2 is larger than M1. 
D) Transaction accounts are part of M2. 
A) Transaction accounts are part of M1. 
B) M2 is more liquid than M1. 
C) M2 is larger than M1. 
D) Transaction accounts are part of M2.

Question 11

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 12

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 13

Suppose the real money demand function is
Md//P = 2400 + 0.2 Y - 10,000 (r + ?e).
Assume M = 4000,P = 2.0,?e = .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 14

Calculate the change in the price level for each of the following events,taken one at a time,with other variables unchanged.
(a)Money supply increases 10%.
(b)Money demand increases 5%.
(c)Money supply decreases 5% while money demand increases 5%.
(d)Money supply increases 15% while money demand increases 5%.

Accepted Answer

(a)10%
(b)

Question 15

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 16

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 17

For something to satisfy the medium-of-exchange function of money,it must be

Accepted Answer

A) backed by gold. 
B) readily exchangeable for other goods. 
C) issued by a central bank. 
D) an inherently valuable commodity. 
A) backed by gold. 
B) readily exchangeable for other goods. 
C) issued by a central bank. 
D) an inherently valuable commodity.

Question 18

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%

Question 19

Suppose that you could buy a one-year bond today,which has an interest rate of 3%.If you wait a year and buy a one-year bond then,the interest rate will be 4%.Two years from now,a one-year bond is expected to offer an interest rate of 5%.According to the expectations theory of the term structure of interest rates,what is the interest rate on a two-year bond today? What is the interest rate on a three-year bond today?

Accepted Answer

Two-year bond: (3% +

Question 20

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.

Suppose velocity is 3,real output is 9000,and the price level is 1.5.What is the level of real money demand in this economy?

The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because

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

Suppose the real interest rate is 4% and the expected inflation rate is 3%.If the money supply increases by 10% and output,the real interest rate,and the expected inflation rate are unchanged,then the price level increases by

Which of the following measures is the best measure of money as a medium of exchange?

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

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

Which of the following statements about M1 and M2 is not true?

People's best guesses about returns on assets are called

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

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

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

For something to satisfy the medium-of-exchange function of money,it must be

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%?

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

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-LM/AD-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

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Exam 7: The Asset Market, Money, and Prices

Suppose velocity is 3,real output is 9000,and the price level is 1.5.What is the level of real money demand in this economy?

The interest rate on long-term bonds is somewhat higher than suggested by the expectations theory because

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

Suppose the real interest rate is 4% and the expected inflation rate is 3%.If the money supply increases by 10% and output,the real interest rate,and the expected inflation rate are unchanged,then the price level increases by

Which of the following measures is the best measure of money as a medium of exchange?

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

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

Which of the following statements about M1 and M2 is not true?

People's best guesses about returns on assets are called

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

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

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

For something to satisfy the medium-of-exchange function of money,it must be

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%?

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

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-LM/AD-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