Chapter 28 Quiz ECO

In 2003, the Canadian economy was close to full employment. Real GDP was $1,000 billion. The nominal interest rate was 4.0 percent a​ year, the inflation rate was 3.0 percent a year, the price level was 1.20, and the velocity of circulation was 8.00. What was the quantity of money in Canada?

$150.0 Billion

The graph shows the demand for money curve. Draw the supply of money curve if the equilibrium interest rate is 8 percent a year. Label it MS. Draw a point at the equilibrium quantity of money and nominal interest rate.

https://i.imgur.com/qlc1oCV.png demand for money decreases and the nominal interest rate falls

The Fed threw a lot of money at the financial crisis in 2008 to unfreeze credit markets and encourage economic activity. As part of its effort to keep the interest rate​ low, the Fed purchased government bonds worth​ $300 billion between March and September 2009. By​ October, the Fed held​ $770 billion in government​ securities, nearly double its​ pre-crisis total. Before the​ crisis, the Fed held mainly government​ securities, which it used to control the quantity of money in the economy. Now government securities make up just​ 35% of the​ Fed's balance sheet. If government securities make up just 35 percent of the​ Fed's assets, calculate the​ Fed's total assets. What effect did the​ Fed's purchase of​ $300 billion of government bonds have on the​ Fed's total​ liabilities?

$2200; increased; 300

Explain why businesses paid workers twice a day during the hyperinflation in Germany after World War I and why workers spent their incomes as soon as they were paid. Choose the correct statement.

(The longest one) Businesses paid workers twice a day so that employees would not leave their jobs and search for employment elsewhere. Workers spent their incomes as soon as they were paid to minimize the loss in value of their income.

In 2002, the United Kingdom economy was at full employment. Nominal GDP was ​£850 billion, the real interest rate was 5 percent per​ year, the inflation rate was 6 percent a​ year, and the price level was 120. Calculate the nominal interest rate.

11 Increases to; 12

Peter Howitt of Brown University has estimated that if inflation is lowered from 3 percent a year to​ zero, then after 30​ years, real GDP would be​ ______ percent higher.

2.3

Sally has a credit card balance of ​$2,000. The credit card company charges a nominal interest rate of 17 percent a year on unpaid balances. The inflation rate is 9 percent a year. Calculate the real interest rate that Sally pays the credit card company.

8

Choose the correct statement.

Inflation is a tax on holding money.

In 2007, the United States was at full employment. The quantity of money was growing at 6.4 percent a​ year, the nominal interest rate was 4.4 percent a​ year, real GDP grew at 1.9 percent a​ year, and the inflation rate was 2.9 percent a year.

decreased; -1.6 growth rate of the quantity of money was greater than the growth rate of nominal GDP

The spread of ATMs and the increased use of debit cards​ ______ money. Everything else remaining the​ same, the nominal interest rate​ ______.

increase the demand​ for; rises