MACROECONOMICS: Money and Prices in the Long Run

If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

$20,000 of new money.

A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to

$50

If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as Select one:

$66,666.67

Refer to Table 29-5. The Bank of Pleasantville's reserve ratio is

10 percent

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the economy's real GDP is 30,000 for the year. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service?

12

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

12.5 percent

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

2.5 percent

If the reserve ratio is 5 percent, then the money multiplier is

20

Refer to Table 29-3. The reserve ratio for this bank is

20 percent

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

22.5 percent

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

3 percent

Which of the following statements is correct? Select one: a. All items that are included in M1 are included also in M2. b. All items that are included in M2 are included also in M1. c. Credit cards are included in both M1 and M2. d. Savings deposits are included in both M1 and M2.

All items that are included in M1 are included also in M2

If P = 4 and Y = 450, then which of the following pairs of values are possible?

M = 600, V =3

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.

Which of the following best illustrates the concept of a store of value?

You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.

Which of the following functions of money is also a common function of most other financial assets?

a store of value

The "yardstick" people use to post prices and record debts is called

a unit of account

According to the classical dichotomy, when the money supply doubles, which of the following also doubles? Select one: a. the price level b. nominal wages c. nominal GDP d. All of the above are correct.

all of the above are correct

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

and a price index are both nominal variables.

The primary difference between commodity money and fiat money is that

commodity money has intrinsic value but fiat money does not.

If inflation is lower than what was expected,

debtors pay a higher real interest rate than they had anticipated.

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

Other things the same if reserve requirements are decreased, the reserve ratio

decreases, the money multiplier increases, and the money supply increases.

The set of items that serve as media of exchange clearly includes

demand deposits

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

does not change the money supply

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

excess demand for money, so the price level will fall.

The value of money rises as the price level

falls, because the number of dollars needed to buy a representative basket of goods falls.

fiat money

has no intrinsic value

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

increase and the money supply will eventually increase.

Monetary neutrality implies that an increase in the quantity of money will

increase the price level

In a fractional-reserve banking system, a decrease in reserve requirements

increases both the money multiplier and the money supply.

The source of hyperinflations is primarily

increases in money-supply growth.

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

increases the price level by 2 percent.

When the price level rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

The Fed's policy decisions have an important influence on

inflation in the long run and employment and production in the short run.

You put money in the bank. The increase in the dollar value of your savings

is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.

the inflation tax

is a tax on everyone who holds money.

If the reserve requirement is 10 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $100,

it must increase its required reserves by $10.

if the discount rate is raised then banks borrow

less from the Fed so reserves decrease.

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

lower then she had expected, and the real value of the loan is lower than she had expected.

When there is a reserve requirement, banks

may hold more than, but not less than, the required quantity of reserves.

When the money market is drawn with the value of money on the vertical axis, the value of money increases if

money demand shifts right or money supply shifts left.

Commodity money is

money with intrinsic value.

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

movement to the left along the money demand curve.

Refer to Table 29-4. If the bank faces a reserve requirement of 20 percent, then it

needs $5,000 more reserves to meet its reserve requirements.

the price level is a

nominal variable

Economic variables whose values are measured in monetary units are called

nominal variables

You put money into an account and earn a real interest rate of 6 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest? Select one: a. 4.8 percent b. 3.2 percent c. 2.8 percent d. None of the above is correct

none of the above is correct

the legal tender requirement means that

people are more likely to accept the dollar as a medium of exchange.

Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

the equilibrium value of money decreases.

The money supply increases when the Fed

the increase will be larger, the smaller is the reserve ratio.

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

the inflation rate, but not real interest rates.

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

the money supply and the price level decrease.

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

the money supply must have increased, perhaps because the Fed bought bonds.

The Fisher effect says that

the nominal interest rate adjusts one for one with the inflation rate.

Money demand depends on

the price level and the interest rate.

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the following is 2?

the price level and velocity

In an economy that relies upon barter,

there is no item in the economy that is widely accepted in exchange for goods and services.

Wealth is redistributed from creditors to debtors when inflation is

unexpectedly high