EC 309 Test 2

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

$150 billion B = R + C

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 the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion M = 2 * 400b

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)

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:

20,000 M/P = 200,000 / 10

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent.

5 ; 5 %M = inflation rate (QTM) %I = inflation rate (Fisher)

Which of these is the BEST example of structural unemployment?

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

According to the quantity equation, the percentage change in P is approximately equal to the percentage change in:

M minus the percentage change in Y plus the percentage change in velocity

"Inflation tax" means that:

as the price level rises, the real value of money held by the public decreases

When the Fed makes an open-market sale, it:

decreases the monetary base (B)

If many banks fail, this is likely to:

increase the ratio of currency to deposits

By paying efficiency wages, firms contribute to higher unemployment because they:

keep the wage above the equilibrium level

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier.

more; decrease

Wage rigidity:

prevents labor demand and labor supply from reaching the equilibrium level

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

remains the same

The major source of government revenue in most countries that are experiencing hyperinflation is:

seigniorage

The natural rate of unemployment is:

the average rate of unemployment around which the economy fluctuates

Frictional unemployment is inevitable because:

the demand for different goods always fluctuates

In the classical model, according to the quantity theory of money and the Fisher equation, an increase in money growth increases:

the nominal interest rate

When the unemployment rate is at a steady state:

the number of people finding jobs equals the number of people losing jobs.

When the real wage is above the level that equilibrates supply and demand:

the quantity of labor supplied exceeds the quantity demand

Frictional unemployment is unemployment caused by:

the time it takes workers to search for a job

All of these are causes of structural unemployment EXCEPT:

unemployment insurance

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

unit of account

The quantity theory of money assumes that:

velocity is constant

Workers unemployed as a result of wage rigidity are:

waiting for a job to become available

A policy that increases the job-finding rate _____ the natural rate of unemployment.

will decrease

Given that M/P = kY, when the demand for money parameter, k, is large, the velocity of money is _____, and money is changing hands _____.

7% %M - %P = %K + %Y 10 - %P = 3 > %P = 7

Which of these is an example of frictional unemployment?

Dave searches for a new job after voluntarily moving to San Diego.

Open-market operations are:

Federal Reserve purchases and sales of government bonds

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is _____ the equilibrium rate, and in the next period it will move _____ the equilibrium rate.

below ; toward