Question 1

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. A

Question 2

If the nominal money supply grows 10%,the inflation rate is 6%,and the income elasticity of money demand is 1.0,then real income growth equals

Accepted Answer

A) 1%. 
B) 2%. 
C) 3%. 
D) 4%. 
A) 1%. 
B) 2%. 
C) 3%. 
D) 4%. D

Question 3

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. C

Question 4

Suppose real money demand is 1000,real output is 6000,and the price level is 200.What is the level of velocity in this economy?

Accepted Answer

A) 2 
B) 3 
C) 6 
D) 12 
A) 2 
B) 3 
C) 6 
D) 12

Question 5

A 5% increase in real income usually leads to ________ in money demand.

Accepted Answer

A) a decrease 
B) no change 
C) an increase of less than 5% 
D) a decrease of 5% 
A) a decrease 
B) no change 
C) an increase of less than 5% 
D) a decrease of 5%

Question 6

Suppose the money demand function is
Md/P = 1000 + 0.2Y - 1000 (r + ?e).
(a)Calculate velocity if Y = 2000,r = .06,and ?e = .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 7

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 8

An increase in the real interest rate would cause an increase in the real demand for money

Accepted Answer

A) no matter what the change in expected inflation. 
B) if expected inflation fell by less than the rise in the real interest rate. 
C) if expected inflation fell by the same amount as the rise in the real interest rate. 
D) if expected inflation fell by more than the rise in the real interest rate. 
A) no matter what the change in expected inflation. 
B) if expected inflation fell by less than the rise in the real interest rate. 
C) if expected inflation fell by the same amount as the rise in the real interest rate. 
D) if expected inflation fell by more than the rise in the real interest rate.

Question 9

When the real quantity of money supplied equals the real quantity of money demanded,there is said to be

Accepted Answer

A) goods market equilibrium. 
B) asset market equilibrium. 
C) monetary neutrality. 
D) money illusion. 
A) goods market equilibrium. 
B) asset market equilibrium. 
C) monetary neutrality. 
D) money illusion.

Question 10

The financial crisis occurred in 2008 in large part because of losses on securities consisting of bundles of mortgage loans known as

Accepted Answer

A) home loan loss reserves. 
B) credit default swaps. 
C) mortgage-backed securities. 
D) naked put options. 
A) home loan loss reserves. 
B) credit default swaps. 
C) mortgage-backed securities. 
D) naked put options.

Question 11

If real money demand increases 5% and real money supply increases 10%,by about how much does the price level change?

Accepted Answer

A) Falls by 5% 
B) Unchanged 
C) Rises by 2% 
D) Rises by 5% 
A) Falls by 5% 
B) Unchanged 
C) Rises by 2% 
D) Rises by 5%

Question 12

If the interest elasticity of money demand is -0.1,by what percent does money demand change if the nominal interest rate rises from 2% to 3%?

Accepted Answer

A) -0.1% 
B) 5% 
C) 0% 
D) -5% 
A) -0.1% 
B) 5% 
C) 0% 
D) -5%

Question 13

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 14

In economics,money refers to

Accepted Answer

A) income. 
B) wealth. 
C) assets used and accepted as payment. 
D) currency. 
A) income. 
B) wealth. 
C) assets used and accepted as payment. 
D) currency.

Question 15

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 16

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 17

Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500.You take $500 out of your passbook savings account and put it in your checking account.What is the overall effect on M1 and M2?

Accepted Answer

A) M1 rises by $500,M2 falls by $500. 
B) M1 is unchanged,M2 is unchanged. 
C) M1 rises by $500,M2 is unchanged. 
D) M1 is unchanged,M2 falls by $500. 
A) M1 rises by $500,M2 falls by $500. 
B) M1 is unchanged,M2 is unchanged. 
C) M1 rises by $500,M2 is unchanged. 
D) M1 is unchanged,M2 falls by $500.

Question 18

The ease and quickness with which an asset can be exchanged for goods,services,or other assets is its

Accepted Answer

A) risk. 
B) time to maturity. 
C) velocity. 
D) liquidity. 
A) risk. 
B) time to maturity. 
C) velocity. 
D) liquidity.

Question 19

What function is money playing in each of these situations:
a.You walk into a store in Germany and see that all the prices are in euros.
b.You buy a candy bar for $1.25.
c.Your Aunt Jane keeps $100 bills tucked into many books in her house.

Accepted Answer

a.unit of account; b

Question 20

A disadvantage of the barter system is that

Accepted Answer

A) no trade occurs. 
B) people must produce all their own food,clothing,and shelter. 
C) the opportunity to specialize is greatly reduced. 
D) gold is the only unit of account. 
A) no trade occurs. 
B) people must produce all their own food,clothing,and shelter. 
C) the opportunity to specialize is greatly reduced. 
D) gold is the only unit of account.

The risk premium is

If the nominal money supply grows 10%,the inflation rate is 6%,and the income elasticity of money demand is 1.0,then real income growth equals

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 real money demand is 1000,real output is 6000,and the price level is 200.What is the level of velocity in this economy?

A 5% increase in real income usually leads to ________ in money demand.

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

An increase in the real interest rate would cause an increase in the real demand for money

When the real quantity of money supplied equals the real quantity of money demanded,there is said to be

The financial crisis occurred in 2008 in large part because of losses on securities consisting of bundles of mortgage loans known as

If real money demand increases 5% and real money supply increases 10%,by about how much does the price level change?

If the interest elasticity of money demand is -0.1,by what percent does money demand change if the nominal interest rate rises from 2% to 3%?

In economics,money refers to

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

The following are all functions of money EXCEPT

Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500.You take $500 out of your passbook savings account and put it in your checking account.What is the overall effect on M1 and M2?

The ease and quickness with which an asset can be exchanged for goods,services,or other assets is its

What function is money playing in each of these situations: a.You walk into a store in Germany and see that all the prices are in euros. b.You buy a candy bar for $1.25. c.Your Aunt Jane keeps $100 bills tucked into many books in her house.

A disadvantage of the barter system is that

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

The risk premium is

If the nominal money supply grows 10%,the inflation rate is 6%,and the income elasticity of money demand is 1.0,then real income growth equals

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 real money demand is 1000,real output is 6000,and the price level is 200.What is the level of velocity in this economy?

A 5% increase in real income usually leads to ________ in money demand.

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

An increase in the real interest rate would cause an increase in the real demand for money

When the real quantity of money supplied equals the real quantity of money demanded,there is said to be

The financial crisis occurred in 2008 in large part because of losses on securities consisting of bundles of mortgage loans known as

If real money demand increases 5% and real money supply increases 10%,by about how much does the price level change?

If the interest elasticity of money demand is -0.1,by what percent does money demand change if the nominal interest rate rises from 2% to 3%?

In economics,money refers to

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

The following are all functions of money EXCEPT

Suppose your bank raises its minimum-balance requirement for free checking on checking accounts by $500.You take $500 out of your passbook savings account and put it in your checking account.What is the overall effect on M1 and M2?

The ease and quickness with which an asset can be exchanged for goods,services,or other assets is its

What function is money playing in each of these situations: a.You walk into a store in Germany and see that all the prices are in euros. b.You buy a candy bar for $1.25. c.Your Aunt Jane keeps $100 bills tucked into many books in her house.

A disadvantage of the barter system is that

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