Econ 309

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$600 billion

If gross domestic product (GDP) measured in billions of current dollars is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are:

$704

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ____ multiplied by B.

(cr + 1)/(cr + rr)

An economy produces three goods: Peanuts, computers, and pizza. Quantities and prices per unit for year 2021 and 2022 are as follows: Good. Quantity (2021) Price (2021) Quantity (2022) Price (2022) Peanuts 5 $13.50 10 $15.50 Computers 10 $16.35 15 $18.20 Pizzas 20 $20.10 25 $30.10

.

Assume that burgers cost $1.0 in 2005 and $1.5 in 2009, whereas pizzas cost $10 in 2005 and $15 in 2009. If 10 burgers were produced in 2005 and 8 in 2009, whereas 5 pizzas were produced in 2005 and 6 in 2009, then the GDP deflator in 2009, using a base year of 2005, was approximately:

1.5

Assume that burgers cost $1.0 in 2005 and $1.5 in 2009, whereas pizzas cost $10 in 2005 and $15 in 2009. If 10 burgers were produced in 2005 and 8 in 2009, whereas 5 pizzas were produced in 2005 and 6 in 2009, then the real GDP growth rate between 2005 and 2009, using a base year of 2005, was approximately:

13.3%

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, transaction velocity is _____ times per year.

5

exogenous variable

A variable determined outside the model

_____ is the price of a fixed basket of goods and services relative to the same basket of goods in some base year.

CPI

The value of a bank's owners' equity is called bank:

Capital

To increase the money supply, the Federal Reserve:

buys government bonds

Real GDP is the value of goods and services measured at

constant prices

The money supply will decrease if the:

currency-deposit ratio increases

Nominal GDP is the value of goods and services measured at

current prices

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

decrease

Liabilities of banks include:

demand deposits increase marginal utility, but not change

Endogenous variables are

determined within the model.

Core inflation—

measures the price of a consumer basket that excludes food and energy products. Because food and energy prices are volatile, core inflation is a better measure of price changes

Producer Price Index—

measures the price of goods bought by firms rather than consumers.

The money supply will increase if the:

monetary base increases.

Open-market operations change the __________, changes in interest rate paid on reserves change the ___________, and changes in the discount rate change the __________.

monetary base, money multiplier ,monetary base

The opportunity cost of holding money is the:

nominal interest rate

The currency-deposit ratio is determined by:

preferences of households about the form of money they wish to hold.

The GDP deflator measures the current ________ ___ __________ relative to its price in the _______ _______.

price of output ; base year

In a 100-percent-reserve banking system, if a customer deposits $100 of currency in a bank, then the money supply :

remains the same

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______, and the currency-deposit and reserve-deposit ratios both ______.

rose; rose

Two equivalent ways to view gross domestic product (GDP) are as the

total income of everyone in the economy or the total expenditure on the economy's output of goods and services.

People use money as a unit of account when they:

use money as a measure of economic transactions.

The quantity theory of money assumes that:

velocity is constant

Crowding out occurs when an increase in government spending _____________ the interest rate and investment _____________

increases; decreases

To increase the money multiplier, the Fed can:

lower the interest rate paid on reserves

In a closed economy, private saving equals:

Y-T-C

When the economy is a closed

Net Exports is zero

Is nominal or real GDP a better measure?

Real GDP

Problems with CPI

Substitution bias—does not reflect the ability of consumers to substitute toward goods whose relative prices have fallen. Thus, when relative prices change, the true cost of living rises at a slower rate than CPI. Introduction of new goods—consumers have more products to choose from. This increases the real value of the dollar. That is, the increase in purchasing power increase on CPI is not reflected in a lower CPI.

An increase in the price of imported goods will show up in

The CPI but not the GDP Deflator

In the classical model with fixed income, if households and the government want to save more than firms want to invest, then:

The interest rate will fall

All of these actions increase government purchases of goods and services EXCEPT the:

federal government sending a Social Security check to a retired firefighter.

Based on the quantity theory of money, the primary cause of inflation is

growth in money supply