Question 1

In the classical model, according to the quantity theory and the Fisher equation, an increase in money growth increases:

Accepted Answer

A) output. 
B) velocity 
C) the nominal interest rate. 
D) the real interest rate. 
A) output. 
B) velocity 
C) the nominal interest rate. 
D) the real interest rate.

Question 2

If the demand for money depends positively on real income and depends inversely on the nominal interest rate, what will happen to the price level today, if the central bank announces (and people believe) that it will decrease the money growth rate in the future, but it does not change the money supply today?

Accepted Answer

People will expect lower inflation in th

Question 3

Percentage change in P is approximately equal to the percentage change in:

Accepted Answer

A) M. 
B) M minus percentage change in Y. 
C) M minus percentage change in Y plus percentage change in velocity. 
D) M minus percentage change in Y minus percentage change in velocity. 
A) M. 
B) M minus percentage change in Y. 
C) M minus percentage change in Y plus percentage change in velocity. 
D) M minus percentage change in Y minus percentage change in velocity.

Question 4

A positive relationship between nominal interest rates and inflation in the United States is obvious in:

Accepted Answer

A) both recent data and nineteenth-century data. 
B) recent data but not nineteenth-century data. 
C) nineteenth-century data but not recent data. 
D) neither nineteenth-century data nor recent data. 
A) both recent data and nineteenth-century data. 
B) recent data but not nineteenth-century data. 
C) nineteenth-century data but not recent data. 
D) neither nineteenth-century data nor recent data.

Question 5

The rate of inflation is the:

Accepted Answer

A) median level of prices. 
B) average level of prices. 
C) percentage change in the level of prices. 
D) measure of the overall level of prices. 
A) median level of prices. 
B) average level of prices. 
C) percentage change in the level of prices. 
D) measure of the overall level of prices.

Question 6

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:

Accepted Answer

A) 10. 
B) 20,000. 
C) 200,000. 
D) 2,000,000. 
A) 10. 
B) 20,000. 
C) 200,000. 
D) 2,000,000.

Question 7

The opportunity cost of holding money is the:

Accepted Answer

A) nominal interest rate. 
B) real interest rate. 
C) federal funds rate. 
D) prevailing Treasury bill rate. 
A) nominal interest rate. 
B) real interest rate. 
C) federal funds rate. 
D) prevailing Treasury bill rate.

Question 8

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is percent.

Accepted Answer

A) 1 
B) 3 
C) 4 
D) 7 
A) 1 
B) 3 
C) 4 
D) 7

Question 9

The quantity equation for money, by itself:

Accepted Answer

A) may be thought of as a definition for velocity. 
B) implies that the velocity of money is constant. 
A) may be thought of as a definition for velocity. 
B) implies that the velocity of money is constant.

Question 10

The transactions velocity of money indicates the in a given period, while the income velocity of money indicates the in a given period.

Accepted Answer

A) number of transactions; amount of income earned 
B) quantity of money used for transactions; quantity of money paid as income 
C) number of times a dollar bill changes hands; number of times a dollar bill enters someone's income 
D) volume of transactions; flow of income 
A) number of transactions; amount of income earned 
B) quantity of money used for transactions; quantity of money paid as income 
C) number of times a dollar bill changes hands; number of times a dollar bill enters someone's income 
D) volume of transactions; flow of income

Question 11

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the interest rate tends to be .

Accepted Answer

A) nominal; 
B) high nominal; 
C) low real; 
D) high real; low 
A) nominal; 
B) high nominal; 
C) low real; 
D) high real; low

Question 12

Interest rates played a part in the 1984 U.S. presidential debates. Some politicians claimed that interest rates rose over the 1981-1983 period, while others claimed rates fell. Below is a table showing interest rates and annual inflation rates from 1981 to 1983.
 $$\begin{array}{l}
\begin{array} { c c c } 
&\text { Interest Rate } & \text { Annual } \
\text { Year } & \text { (annual \%) } & \text { Inflation Rate } \
1981 & 14.03 \% & 10.3 \% \
1982 & 10.69 \% & 6.2 \% \
1983 & 8.63 \% & 3.2 \%
\end{array}\
\text { Reconcile these conflictingclaims. }
\end{array}$$ $$\begin{array}{l}
\begin{array} { c c c } 
&\text { Interest Rate } & \text { Annual } \
\text { Year } & \text { (annual \%) } & \text { Inflation Rate } \
1981 & 14.03 \% & 10.3 \% \
1982 & 10.69 \% & 6.2 \% \
1983 & 8.63 \% & 3.2 \%
\end{array}\
\text { Reconcile these conflictingclaims. }
\end{array}$$

Accepted Answer

Using the Fisher effect, the n

Question 13

Mary Tsai is paid $3,000 every 30 days. Her salary is deposited directly in her bank. She spends all her money at a constant rate over the 30 days and must pay cash. She can (1) withdraw all of the money at once; (2) withdraw half at once and the rest after 15 days; (3) withdraw one-third at once, one-third after 10 days, and one-third at 20 days; or (4) make any number of evenly spaced withdrawals. Each withdrawal costs her $2 in terms of time and inconvenience. For each day that Mary has a dollar in the bank, she gets .03 cents (.0003 per dollar) in interest. Thus, if she withdraws half of her money immediately and half in 15 days, she has $1,500 in the bank for 15 days and earns $6.75 interest.
a. Create a table showing transaction costs, interest earned, and total net earnings (+) or cost (-) associated with one, two, three, or four withdrawals per month.
b. How many withdrawals per month lead to the largest net earnings? If Mary chooses this number, what will be her average amount of cash on hand over the 30 days?

Accepted Answer

@#IMG-DLM& b. Mary should choo

Question 14

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is times per year.

Accepted Answer

A) 0.2 
B) 2 
C) 5 
D) 10 
A) 0.2 
B) 2 
C) 5 
D) 10

Question 15

Real money balances equal the:

Accepted Answer

A) sum of coin, currency, and balances in checking accounts. 
B) amount of money expressed in terms of the quantity of goods and services it can purchase. 
C) number of dollars used as a medium of exchange. 
D) quantity of money created by the Federal Reserve. 
A) sum of coin, currency, and balances in checking accounts. 
B) amount of money expressed in terms of the quantity of goods and services it can purchase. 
C) number of dollars used as a medium of exchange. 
D) quantity of money created by the Federal Reserve.

Question 16

The general demand function for real balances depends on the level of income and the:

Accepted Answer

A) real interest rate. 
B) nominal interest rate. 
C) rate of inflation. 
D) price level. 
A) real interest rate. 
B) nominal interest rate. 
C) rate of inflation. 
D) price level.

Question 17

The demand for real money balances is generally assumed to:

Accepted Answer

A) be exogenous. 
B) be constant. 
C) increase as real income increases. 
D) decrease as real income increases. 
A) be exogenous. 
B) be constant. 
C) increase as real income increases. 
D) decrease as real income increases.

Question 18

According to the classical theory of money, inflation does not make workers poorer because wages increase:

Accepted Answer

A) faster than the overall price level. 
B) more slowly than the overall price level. 
C) in proportion to the increase in the overall price level. 
D) in real terms during periods of inflation. 
A) faster than the overall price level. 
B) more slowly than the overall price level. 
C) in proportion to the increase in the overall price level. 
D) in real terms during periods of inflation.

Question 19

The real interest rate is equal to the:

Accepted Answer

A) amount of interest that a lender actually receives when making a loan. 
B) nominal interest rate plus the inflation rate. 
C) nominal interest rate minus the inflation rate. 
D) nominal interest rate. 
A) amount of interest that a lender actually receives when making a loan. 
B) nominal interest rate plus the inflation rate. 
C) nominal interest rate minus the inflation rate. 
D) nominal interest rate.

Question 20

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

Accepted Answer

A) the Organization of Petroleum Exporting Countries (OPE
C) . 
B) the U.S. Treasury. 
C) the Fed. 
D) private citizens. 
A) the Organization of Petroleum Exporting Countries (OPE
C) . 
B) the U.S. Treasury. 
C) the Fed. 
D) private citizens.

In the classical model, according to the quantity theory and the Fisher equation, an increase in money growth increases:

Percentage change in P is approximately equal to the percentage change in:

A positive relationship between nominal interest rates and inflation in the United States is obvious in:

The rate of inflation is the:

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:

The opportunity cost of holding money is the:

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is percent.

The quantity equation for money, by itself:

The transactions velocity of money indicates the in a given period, while the income velocity of money indicates the in a given period.

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the interest rate tends to be .

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is times per year.

Real money balances equal the:

The general demand function for real balances depends on the level of income and the:

The demand for real money balances is generally assumed to:

According to the classical theory of money, inflation does not make workers poorer because wages increase:

The real interest rate is equal to the:

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

The Science of Macroeconomics

The Data of Macroeconomics

National Income Where It Comes From and Where It Goes

Money and Inflation

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand II: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

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Exam 5: The Open Economy

In the classical model, according to the quantity theory and the Fisher equation, an increase in money growth increases:

Percentage change in P is approximately equal to the percentage change in:

A positive relationship between nominal interest rates and inflation in the United States is obvious in:

The rate of inflation is the:

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:

The opportunity cost of holding money is the:

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is percent.

The quantity equation for money, by itself:

The transactions velocity of money indicates the in a given period, while the income velocity of money indicates the in a given period.

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the interest rate tends to be .

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is times per year.

Real money balances equal the:

The general demand function for real balances depends on the level of income and the:

The demand for real money balances is generally assumed to:

According to the classical theory of money, inflation does not make workers poorer because wages increase:

The real interest rate is equal to the:

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

The Science of Macroeconomics

The Data of Macroeconomics

National Income Where It Comes From and Where It Goes

Money and Inflation

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand II: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Filters