Macro Chapter 5

If the quantity of real money balances is kY, where k is a constant, then velocity is

1/k

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5

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 money balances in the economy equal:

20,000

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

3

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year.

5

Real money balances equals

amount of money expressed in terms of the quantity of goods and services it can purchase

"Inflation tax" means that

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

The preferences of households determine the

currency-deposit ratio

When people want to hold _____ money, the income velocity of money increases, and the demand parameter k _____

less, decreases

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

small ; infrequently

The real interest rate is equal to the

the nominal interest rate minus the inflation rate

The Quantity Theory of Money assumes that

velocity is constant

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

7 (10-3)

The money supply will decrease if the

Currency deposit ratio increases

If the Federal Reserve wishes to increase the money supply, it should

Decrease the discount rate

The demand for real money balances is generally assumed to

Increase as real income increases

The ratio of the money supply to the monetary base is

The money multiplier

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.

b. the productive capability of the economy; the money supply

When the Fed makes and open market sale, it

decreases the monetary base

If many banks fail, this is likely to

increase the ratio of currency to deposits