Econ 1101 - Chapters 22 & 27 Exam Review

Assuming no other changes, if checkable deposits increases by $40 billion and currency in ciruclation decreasesbt $40 billion, the:

M1 money supply will not change

The phrase, "too much money chasing too few goods," best describes:

Demand-pull inflation

Other things equal, an excessive increase in the money supply will:

Decrease the purchasing power of each dollar

Suppose that lenders want to receive a real rate of interest of 5 percent, and they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge what rate of interest?

7 percent

The deposits of $100,000 or more are:

A component of M2 and not M1

IF you write a check on a bank to purchase your textbooks, you are using money primarily as:

A medium of exchange

Who is least likely to be hurt by unanticipated inflation?

An owner of a small business (Wrong answers: disabled laborer who is living off accumulated savings, a pension steelworker, and a secretary)

Inflation is undesirable because it:

Arbitrarily redistributes real income and wealth

Small-denomination time deposits, by definition:

Are less than $100,000

Inflation initiated by increases in wages or other resource prices is labelled:

Cost-push inflation

Rising per-unit production costs are most directly associted with:

Cost-push inflation

The paper money used in the United States is

Federal REserve Notes

A $20 bill is a:

Federal Reserve Note

In the U.S. economy, the money supply is controlled by the:

Federal Reserve SYstem

Coins in people's pockets and purses are:

Included both in M1 and M2

If both the real interest rate and the nominal interest aret are 3 percent, then the:

Inflation premium is zero

The annual rate of inflation can be found by subtracting:

Last year's price index form this year's price index and dividing the difference by last year's price index

The Federal Reserve System:

Is basically an independent agency of the federal government

During peridos of hyperinflation:

People tend to hold goods rather than money

Cost-push inflation:

Reduced real output

Real income can be determined by:

Reduing nominal income by the inflation rate

Suppose that a person's nominal income rises from $10,000 to $12,000 and the conumer price index increases from 110 to 105. The person's real income will:

Rise by about 15 percent

The phase of hte busienss cycle in which real GDP is at a minium is caleld:

The trough

To say that coins are "token money" means that

Their fave value is greater than their commodity value

The cost-of-living adjustment clauses in labor contracts (COLAs):

Tie wag e increases to change in the price level

Checkable deposits are classified as money because:

They can be readily used in purchasing goods and services or paying debts

A $70 price tag on a sweater in a department store window is an example of money functioning as a:

Unit of account

To say money is socially defined means that:

Whatever performs the functions of money well is considered to be money

Currency held in the valut of the First National Bank is:

Counted as part of M2 but not M1

In the United States, the money supply (M1) is comprised of:

Coins, paper currency, and checkable deposits

The U.S. dollar in 2014 had the same purchasing power as:

18 cents in 1972

The largest component of the money supply (M1) is:

Checkable deposits

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent

Currency (paper money plus coins) contains approximately:

45 percent of the U.S. M1 money supply

The following objects have been used as commodity money, excpet:

All have functioned as a medium of exchange (money) (A. cocoa beans, B. cigarettes, C. cowrie shells)

Money functions as a:

All of the above (A. store of value, B. Unit of account, C. Medium of exchange)

During periods of very rapid inflation (hyperinflation), money may cease to work as a medium of exchange:

Because people and businesses will not want to accept it in financial transactions

Currency in circulation is part of:

Both M1 and M2

Recurring up and down swings in an economy's real Gross Domestic PRoduct (GDP_ over time, are called

Business cycles

The money supply of the United States is backed:

By the government's ability to control the supply of money and the universal faith and trust

Given the annual rate of inflation, the "rule of 70" allows one to:

Calculate the number of years required for the price level to double

Which of the following does not explain what supports the money supply in the United States:

It is backed by the government's gold supply (Wrong answers: B. it is widely accepted in transactions of all forms, C. It is designated "legal tender" by the federal government, D. It is relatively scarce)

"near-monies" are included in:

M2 only

Recently, a labor union argued that the standards of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increasing in the nominal wages of its members through collective bargaining. Is the critic correct?

No, because real income may fall if prices increase more proportionately than the increase in nominal income

Under which of the following circumstances would we observe the greatest increase in real income

Nominal income falls by 2 percent and the price level falls by 10 percent (Wrong answers: variations of the correct answer but with lower real income)

Demand-pull inflation

Occurs when total spending exceeds the economy's ability to provide output at the existing price level

Demand-pull inflation:

Occurs when total spenidng in the ceocnomy is excessive

Paper money (currency) in the United States is:

Printed by the Bureau of Engraving and issued by the Federal Reserve Banks

Unanticipated inflation:

Reduces the real burden of the public debt to the government

In 2010, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. WE can conclude that Tatum's real income:

Rose by approximately 3 percent

Inflation refers to:

THe pressure for prices to rise in most markets in an economy

If you are estimating your total expenses for school next semester, you are using money primarily as

Unit of account