ch 7 Macro economics

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The application concludes that if we take the nominal interest rate minus the rate paid on​ TIPS, we will have a rough estimate of the

A.expected inflation rate.

Bitcoin is an example of a

A. cryptocurrency.

A system in which people trade goods they​ don't want to consume for goods they do want to consume is called A.an indirect exchange economy. B.a commodity money system. C.a barter system. D.a fiat money system.

C. a barter system.

Rank the following assets in terms of​ liquidity, from the most liquid to the least​ liquid: ​a) Savings​ Account; ​b) Cash; ​c) Land; ​d) a U.S. Savings Bond

Cash; Savings​ Account; U.S. Savings​ Bond; Land

You have a choice between two different investment​ possibilities: Choice A​: Buying a​ two-year $1,000 bond with an annual interest rate of 12​%. You will receive the face value of this bond​ ($1,000) plus an interest payment when this bond matures at the end of two years. Choice B. Buying a​ one-year $1,000 bond with an annual interest rate of 11​% and​ then, after one​ year, depositing the proceeds of this bond​ (face value plus​ interest) into a savings account for one year. The savings account is expected to pay an interest rate of 14​%. Which possibility do you prefer using expected return as your only​ criterion?

Choice B.

Define the velocity of money.

It is the ratio of nominal GDP to the amount of money in circulation. In the quantity theory of​ money, velocity is assumed to be highly stable

Which of the following portfolio allocation decisions represents the best individual response to a decrease in the interest rate on nonmonetary​ assets?

Sell some nonmonetary assets to get cash.

If you perceive that the risk to stocks is likely to​ rise, your optimal portfolio decision might be to

Sell some stocks and use the money to buy bonds.

Who determines the​ nation's money​ supply?

The Federal Reserve System.

The​ prisoner-of-war camp described by Radford​ ("In Touch with Data and​ Research: Money in a​ Prisoner-of-War Camp") periodically received large shipments of cigarettes from the Red Cross or other sources. How did cigarette shipments affect the price level​ (the prices of goods in terms of​ cigarettes) in the PO

The price level rose.

How is the level of real income related to money​ demand?

They are directly related-the higher the level of real​ income, the higher the demand for money.

How is the price level related to nominal money​ demand?

They are directly related-the higher the price​ level, the higher the demand for money.

How does the expected rate of return on an asset affect its​ desirability?

They are directly related​ - the higher the expected​ return, all else​ equal, the more attractive the asset.

How does the level of liquidity affect an​ asset's desirability?

They are directly related​ - the more liquid the​ asset, all else​ equal, the more desirable the asset.

How is the interest rate on other assets​ (stocks and bonds for​ example) related to money​ demand?

They are inversely related-the higher the interest rate on other​ assets, the lower the demand for money.

How does the level of risk affect an​ asset's desirability?

They are inversely related​ - the higher the level of​ risk, all else​ equal, the less attractive the asset.

Why is equilibrium in the asset market described by the condition that real money supply equal real money ​demand?

When supply equals demand for​ money, demand must also equal supply for nonmonetary assets.

Which of the following best completes the definition of money as used by​ economists? Money​ is:

a special set of assets that are widely accepted as payments for goods and services.

Which of the following would increase the​ public's expected rate of​ inflation?

an increase in money growth

The M2 measure of the money supply consists of

components of​ M1, savings​ deposits, small-denomination time​ deposits, and MMMFs​ (noninstitutional).

A claim to a resource that is recorded in a computer system is a

cryptocurrency

On some occasions the prisoners knew in advance when the cigarette shipments were to arrive. What happened to the demand for cigarette money and the price level in the camp in the days just before an anticipated​ shipment?

demand for money​ declines; the price level rises

Complete the following sentences involving the different functions of money.: When money is used as payment for goods and​ services, it is being used as a medium of --------. When it is used to express the relative value of goods and​ services, it is being used as a --------. When it is used to hold purchasing power for future​ use, it is being used as a--------

exchange unit of account store of value.

All else being​ equal, how would this increase in the expected inflation rate affect interest​ rates?

increase the nominal interest rate

The use of money is more efficient than barter because the introduction of money

reduces transactions costs.

If you were to move​ $4000 from your savings account into your checking​ account, then M1 would​ _____ and M2 would​ _____.

rise by​ $4000; remain unchanged.

An​ open-market operation to reduce the money supply would occur if the central bank

sells bonds to the public.

In the​ U.S., the money supply is determined by

the Federal Reserve.

What is the relationship between the equilibrium price level and the nominal money​ supply?

the equilibrium price level is proportional to the nominal money supply.

Which of the following four variables has little impact on the aggregate demand for​ money?

the real exchange rate

If a central bank wants to change the money​ supply, it will most commonly use

​open-market operations.


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