Monetary System
If P denotes the price of goods and services measured in terms of money, then
1/P represents the value of money measured in terms of goods and services P can be regarded as the "overall price level" an increase in the value of money is associated with a decrease in P.
If the relevant money-supply curve is the one labeled MS1 then the equilibriumm price level is
2 and the equilibrium value of money is 0.5
Based on the quantity equation, if Y=3000, P=4, and V=3, then M=
4000
In the 1970's, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by
5D. purchasing bonds on the open market, which would have lowered the value of money
An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.
6D. His real salary has fallen and his nominal salary has risen
If velocity =5, the price level =1.5, and the real value of output is 2500, then the quantity of money is
750,000
The federal funds rate is the interest rate that
Banks charge one another for loans
If the public decides to hold more currency and fewer deposits in the banks, bank reserves
Decreases and the money supply eventually decreases
The classical dichotomy refers to the idea that the supply of money
Determines nominal variables, but not real variables
Which of the following is correct?
If the fed purchases bond in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve
In 1991, the Federal reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have
Increased both the money multiplier and the money supply
other things the same, if reserve requirements are increased, the reserve ratio
Increases, the money multiplier decreases, and the money supply decreases
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
Nominal GDP would rise by 5 percent, real GDP would be unchanged
The fisher effect
Says there is a one for one adjustment of the nominal interest rate to the inflation rate.
Reserve requirements are regulations concerning
The amount of reserves banks must hold against deposits
Which of the following is correct?
The classical dichotomy separates real and nominal variables Monetary neutrality is the proposition that changes in the money supply do not change real variables When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works.
When shopping you noticed that a pair of jeans costs $20 and that a tee-shirt costs$10. You compute the price of jeans relative to tee-shirts.
The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
The price level and nominal wages.
The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land
The supply of money increases and the value of money falls
Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply
The upward trend in the price level but not the upward trend in real GDP
What quantity is measured along the vertical axis?
The value of money
Which of the following events could explain a shift of the money supply curve MS1, to MS2
an open-market purchase of bonds by the federal reserve
During wars, the public tends to hold relatively more currency and relatively fewer deposits. This decision make reserves
and money supply decrease
In a fractional-reserve banking system, an increase in reserve requirement
decreases both the money multiplier and the money supply
When the Fed makes open-market purchases bank
deposits and lending increased
If the number of dollars needed to buy a representative basket of goods falls, the price level
falls, so the value of money rises
Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your
real wage is lower
When inflation rises, the nominal interest rate
rises, and people desire to hold less money
If the value of a dollar falls, then the quantity of money demanded
rises, meaning people want to hold more of their wealth in a liquid form
The Fed can decrease the money supply byconductingopen-market
sales or by raising the discount rate
When the Federal Reserve conducts open-market operations to increase the money supply, it
Buys government bonds from the public
Which of the following is not implied by the quantity equation?
With constant money supply and velocity, an increase in output creates a proportional increase in the price level.
When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a
a movement to the right along the money demand curve
When the Fed decreases the discount rate, banks will
borrow more from the Fed and lend more to the public. The money supply increases.
Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
both the classical dichotomy and the quantity theory of money
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
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.
In a fractional-reserve banking system, a decrease in reserve requirements
increases both the money multiplier and the money supply.
The inflation tax
is a tax on everyone who holds money
When the Fed conducts open-Market purchases
it buys Treasury securities, which increases the money supply.
The price level rises if either
money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money
If the discount rate is lowered,banks borrow
more from the Fed so reserves increase
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
more reserves, so the reserve ratio will rise.
Which tool of monetary policy does the Federal Reserve usemostoften
open-market operations
In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in uses as a medium of exchange. We would predict that this increase in gold
raised the price level, but decreased the value of gold in Cairo
Money demand depends on
the price level and the interest rate