econ final
You bought some shares of a stock and, over the next year, the price per share increased by 5% and the price level increased by 8%. Before taxes, you experienced
a nominal gain, and a real loss, and you paid taxes on the nominal gain
You bought some shares of stock and, over the next year, the price per share increases by 5%, as did the price level. Before taxes, you experienced
a nominal gain, but no real gain, and you paid taxes on the nominal gain
The term hyperinflation refers to
a period of very high inflation
When the price level falls
all of the above are correct
As the price level rises (people are)
people are less willing to lend, so interest rates rise
During the recent financial crisis velocity decreases. This means that the rate at which money changed hands
decreased. Other things the same, a decrease in velocity decreases the price level
As the price level rises, the value of money
decreases, so people want to hold more of it
When prices are falling, economists say that there is
deflation
A decrease in money supply creates an excess
demand for money that is eliminated by falling prices
As the price level falls, people will want to hold
less money, so the interest rate falls
Most economists use the aggregate demand and aggregate supply model primarily to analyze
short-run fluctuations in the economy
The idea that inflation by itself reduced people's purchasing power is called
the inflation fallacy
Which of the following is correct? (long-run vs short-run)
the long-run, not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables
A bank has $10,000 in deposits and $8,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is
20%
Which of the following is not included in M1?
$500 in savings account
At a given price level, an increase in which of the following shifts aggregate demand to the right? 1. consumption 2. investment 3. government expenditures
all of the above
If the reserve requirement is 5%, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it
all of the above
M1 includes: 1. currency 2. demand deposits 3. traveler's checks
all of the above
The long-run aggregate supply curve
all of the above
If P denotes the prices of goods and services measured in terms of money, then: 1. 1/P represents the value of money measured in goods and services 2. P is regarded as "overall price level" 3. Increase in value of money is associated with decrease in P
all of the above are correct
When prisoners use cigarettes or some other good as money, cigarettes become
commodity money and function as a unit of account
If inflation is higher than what was expected,
creditors receive a lower real interest rate than they had anticipated
Other things the same, if the price level falls, the dollar
depreciates
A decrease in the US interest rate leads to
depreciation of the dollar that leads to greater net exports
Monetary neutrality means that a change in the money supply
does not change real variables. Most economists think it is good description of economy in the long-run but not the short-run
An increase in the interest rate causes investment to
fall and exchange rate to appreciate
As recessions begin, production
falls and unemployment rises
When interest rate falls
firms want to borrow more new plants and equipment and households want to borrow more for homebuilding
High and unexpected inflation has a greater cost
for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation
Aggregate demand shifts right when the government
increases the money supply
An open-market purchase
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public
The Federal Reserve
is responsible for conducting the nation's monetary policy, and it plays a role in regulatory banks
A bank has a 10% reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement
it has $400 in reserves and $3,600 in loans
A bank has a 10% loan reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement
it has $500 in reserves and $4,500 in loans
Commodity money is
money with intrinsic value
Economic variables whose values are measured in goods are called
real variables
According to classical dichotomy, which of the following is not influenced by monetary factors?
real wages and real GDP
A relatively mild period of falling incomes and rising unemployment is called a
recession
On a bank's T-account, which are part of the bank's assets?
reserves but not desposits made by its customers
Shoeleather cost refers to
resources used to maintain lower money holdings when inflation is high
When the price level falls, investment spending
rises
When inflation rises, the nominal interest rate
rises, and people desire to hold less money
To decrease the money supply, the Fed can
sell government bonds or increase the discount rate
Other things the same, if the US price level rises, then
the supply of dollars in the market for foreign-currency exchange decreases, so the exchange rate rises
If... M = 3,000 P = 2 Y = 12,000 then what is velocity?
8
Other things the same, as the price level falls, a country's exchange rate
and interest rate falls
Which of the following is an example of barter?
a barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet
Which of the following is correct? (recession in other countries)
a recession in other countries reduces US net exports so that US aggregate demand shifts left
Other things the same, as the price level rises, exchange rates
and interest rates rise
Money: 1. is more efficient than barter 2. makes trade easier 3. allows greater specialization
all of the above are correct
The New York Federal Reserve Bank: 1. president always gets to vote at FOMC meetings 2. conducts open market transactions 3. is 1/12 of regional Federal Reserve Banks
all of the above are correct
Which of the following institutions is a central bank? 1. bank of japan 2. bank of england 3. federal reserve system
all of the above are correct
According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to
an increase in the price level but does not change real GDP
Interest rates adjusted for the effects of inflation
are real variables, inflation in a nominal variable
Which of the following fall during recession?
both retail sales and unemployment
On a Sunday morning, Tom sold 300 cups of coffee for a total of $750
the $750 is the nominal variable. The 300 cups of coffee is a real variable
Fiat money
has no intrinsic value
Wealth is redistributed from debtors to creditors when inflation was expected to be
high and it turns out to be low
James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate paid is
hight than he had expected, and the real value of the loan is higher than he had expected
Credit card limits are included in
neither M1 or M2
Aggregate demand shifts right if at any given price level
net exports rise and shifts right if the money supply increases
According to assumptions of the quantity theory of money, if the money supply decreases by 5%, then
nominal GDP would rise by 5% and real GDP would be unchanged
As the price level rises (people will)
people will want to buy fewer goods, so the interest rate rises; people will want to hold more money, so the interest rate rises
As the price level falls (people will)
people will want to buy more bonds, so the interest rate falls
There is a (short-run tradeoff)
short-run tradeoff between inflation and unemployment
Dollar bills, rare paintings, and emerald necklaces are all
stores of value
Menu costs refers to
the cost of more frequent price changes induced by higher inflation
Liquidity refers to
the ease at which an asset is converted to the medium of exchange
As the price level rises,
the exchange rate rises, so net exports fall
At the Federal Reserve
the nation's monetary policy is made by the federal open market committee, which meets about every six weeks
Other things the same, if the US price level falls, then
the supply of dollars in the market for foreign-currency exchange increases, so the exchange rate falls
In an economy that relies upon barter
there is no item in the economy that is widely accepted in exchange for goods and services
Other things the same, if the US price level falls, then (US residents want)
to buy more foreign bonds, the real exchange rate falls
Which of the following typically rises during a recession?
unemployment
Which of the following typically rises during recession?
unemployment
