ch 7 Macro economics
The application concludes that if we take the nominal interest rate minus the rate paid on TIPS, we will have a rough estimate of the
A.expected inflation rate.
Bitcoin is an example of a
A. cryptocurrency.
A system in which people trade goods they don't want to consume for goods they do want to consume is called A.an indirect exchange economy. B.a commodity money system. C.a barter system. D.a fiat money system.
C. a barter system.
Rank the following assets in terms of liquidity, from the most liquid to the least liquid: a) Savings Account; b) Cash; c) Land; d) a U.S. Savings Bond
Cash; Savings Account; U.S. Savings Bond; Land
You have a choice between two different investment possibilities: Choice A: Buying a two-year $1,000 bond with an annual interest rate of 12%. You will receive the face value of this bond ($1,000) plus an interest payment when this bond matures at the end of two years. Choice B. Buying a one-year $1,000 bond with an annual interest rate of 11% and then, after one year, depositing the proceeds of this bond (face value plus interest) into a savings account for one year. The savings account is expected to pay an interest rate of 14%. Which possibility do you prefer using expected return as your only criterion?
Choice B.
Define the velocity of money.
It is the ratio of nominal GDP to the amount of money in circulation. In the quantity theory of money, velocity is assumed to be highly stable
Which of the following portfolio allocation decisions represents the best individual response to a decrease in the interest rate on nonmonetary assets?
Sell some nonmonetary assets to get cash.
If you perceive that the risk to stocks is likely to rise, your optimal portfolio decision might be to
Sell some stocks and use the money to buy bonds.
Who determines the nation's money supply?
The Federal Reserve System.
The prisoner-of-war camp described by Radford ("In Touch with Data and Research: Money in a Prisoner-of-War Camp") periodically received large shipments of cigarettes from the Red Cross or other sources. How did cigarette shipments affect the price level (the prices of goods in terms of cigarettes) in the PO
The price level rose.
How is the level of real income related to money demand?
They are directly related-the higher the level of real income, the higher the demand for money.
How is the price level related to nominal money demand?
They are directly related-the higher the price level, the higher the demand for money.
How does the expected rate of return on an asset affect its desirability?
They are directly related - the higher the expected return, all else equal, the more attractive the asset.
How does the level of liquidity affect an asset's desirability?
They are directly related - the more liquid the asset, all else equal, the more desirable the asset.
How is the interest rate on other assets (stocks and bonds for example) related to money demand?
They are inversely related-the higher the interest rate on other assets, the lower the demand for money.
How does the level of risk affect an asset's desirability?
They are inversely related - the higher the level of risk, all else equal, the less attractive the asset.
Why is equilibrium in the asset market described by the condition that real money supply equal real money demand?
When supply equals demand for money, demand must also equal supply for nonmonetary assets.
Which of the following best completes the definition of money as used by economists? Money is:
a special set of assets that are widely accepted as payments for goods and services.
Which of the following would increase the public's expected rate of inflation?
an increase in money growth
The M2 measure of the money supply consists of
components of M1, savings deposits, small-denomination time deposits, and MMMFs (noninstitutional).
A claim to a resource that is recorded in a computer system is a
cryptocurrency
On some occasions the prisoners knew in advance when the cigarette shipments were to arrive. What happened to the demand for cigarette money and the price level in the camp in the days just before an anticipated shipment?
demand for money declines; the price level rises
Complete the following sentences involving the different functions of money.: When money is used as payment for goods and services, it is being used as a medium of --------. When it is used to express the relative value of goods and services, it is being used as a --------. When it is used to hold purchasing power for future use, it is being used as a--------
exchange unit of account store of value.
All else being equal, how would this increase in the expected inflation rate affect interest rates?
increase the nominal interest rate
The use of money is more efficient than barter because the introduction of money
reduces transactions costs.
If you were to move $4000 from your savings account into your checking account, then M1 would _____ and M2 would _____.
rise by $4000; remain unchanged.
An open-market operation to reduce the money supply would occur if the central bank
sells bonds to the public.
In the U.S., the money supply is determined by
the Federal Reserve.
What is the relationship between the equilibrium price level and the nominal money supply?
the equilibrium price level is proportional to the nominal money supply.
Which of the following four variables has little impact on the aggregate demand for money?
the real exchange rate
If a central bank wants to change the money supply, it will most commonly use
open-market operations.