ECON 410 Zhang review for test 2

According to the quantity theory of money and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase: 2 percent. 3 percent. 5 percent. 6 percent.

5 percent

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by _ percent. 1; 5 5; 1 1; 1 5; 5

5; 5

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: A) $200 billion. B) $400 billion. C) $800 billion. D) $1,000 billion

800 billion

The central bank in the United States is the: A) Bank of America. B) U.S. Treasury. C) U.S. National Bank. D) Federal Reserve.

Federal reserve

Open-market operations are: A) Commerce Department efforts to open foreign markets to international trade. B) Federal Reserve purchases and sales of government bonds. C) Securities and Exchange Commission rules requiring open disclosure of market trades. D) Treasury Department purchases and sales of the U.S. gold stock

Federal reserve purchases and sales of government bonds

When the demand for loanable funds exceeds the supply of loanable funds, households want to save than firms want to invest and the interest rate . A) more; rises B) more; falls C) less; rises D) less; falls

Less, rises

Open-market operations change the _; changes in interest rate paid on reserves change the ; and changes in the discount rate change the __. monetary base; monetary base; monetary base money multiplier; money multiplier; money multiplier monetary base; money multiplier; monetary base money multiplier; monetary base; money multiplier

Monetary base, money multiplier, monetary base

In a system with 100-percent-reserve banking: all banks must hold reserves equal to 100 percent of their loans. no banks can make loans using deposits made at their institutions. the banking system completely controls the size of the money supply. no banks can accept deposits.

No banks can make loans using deposits made at their institutions

Demand deposits are funds held in: currency. certificates of deposit. checking accounts. money markets.

checking accounts

A country that is on a gold standard primarily uses: A) commodity money. B) fiat money. C) credit money. D) the barter system.

commodity money

According to the model developed in Chapter 3, when taxes decrease without a change in government spending: A) consumption and investment both increase. B) consumption and investment both decrease. C) consumption increases and investment decreases. D) consumption decreases and investment increases

consumption increases and investment decreases

The right of seigniorage is the right to: levy taxes on the public. borrow money from the public. draft citizens into the armed forces. create money.

create money

In a classical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would: still crowd out exactly $10 billion of investment. crowd out between zero and $10 billion of investment. not crowd out any investment. crowd out more than $10 billion of investment.

crowd out between zero and 10 billion of investment

The preferences of households determine the: reserve-deposit ratio. currency-deposit ratio. size of the monetary base. loan-deposit ratio.

currency deposit ratio

High-powered money is another name for: currency. demand deposits. the monetary base. M2.

the monetary base

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. A) 0.2 B) 2 C) 5 D) 10

5

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real gross domestic product (GDP) must be _____ percent. 3 4 9 11

3

According to the quantity equation, if the transactions velocity of money remains constant while the quantity of money doubles, the: price of the average transaction must double. number of transactions must remain constant. price of the average transaction multiplied by the number of transactions must remain constant. price of the average transaction multiplied by the number of transactions must double.

Price of the average transaction multiplied by the number of transactions must double.

The definition of the transactions velocity of money is: money multiplied by prices divided by transactions. transactions divided by prices multiplied by money. money divided by prices multiplied by transactions. prices multiplied by transactions divided by money.

Prices multiplied by transactions divided by money

An important factor in the evolution of commodity money to fiat money is: a desire to reduce transaction costs. a desire to increase transaction costs. the fact that gold is no longer highly valued. a desire to use gold for jewelry.

a desire to reduce transaction costs

"Inflation tax" means that: as the price level rises, taxpayers are pushed into higher tax brackets. as the price level rises, the real value of money held by the public decreases. as taxes increase, the rate of inflation also increases. in a hyperinflation, the chief source of tax revenue is the ability of the government to create money.

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

Economists use the term money to refer to: income. profits. assets used for transactions. earnings from labor.

assets used for transactions

The inflation tax is paid: A) only by the central bank. B) by all holders of money. C) only by government bond holders. D) equally by every household.

by all holders of money

When the Fed makes an open-market sale, it: increases the money multiplier (m). increases the currency-deposit ratio (cr). increases the monetary base (B). decreases the monetary base (B).

decreases the monetary base (B)

Public saving is: A) always positive. B) always negative. C) always zero. D) either positive, negative, or zero.

either positive negative or zero

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have _ rates of inflation and decades of low money growth tended to have ___ rates of inflation. high; high high; low low; low low; high

high; low

People use money as a store of value when they: A) hold money to transfer purchasing power into the future. B) use money as a measure of economic transactions. C) use money to buy goods and services. D) hold money to gain power and esteem

hold money to transfer purchasing power into the future

In a closed economy, Y - C - G equals: A) national saving. B) private saving. C) public saving. D) financial saving

national saving

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: desire to increase prices throughout the economy. need to generate revenue to pay for spending. responsibility to increase nominal interest rates by increasing expected inflation. inability to buy government securities through open-market operations.

need to generate revenue to pay for spending

The demand for real money balances is generally assumed to: A) be exogenous. B) be constant. C) increase as real income increases. D) decrease as real income increases.

increase as real income increases

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation: increases by 2 percent. increases by 1 percent. remains constant. decreases by 1 percent.

increases by 1 percent

Inflation _ the variability of relative prices and ___ the efficiency of the allocation of resources. increases; increases increases; decreases decreases; decreases decreases; increases

increases; decreases

In the classical model with fixed output, the supply and demand for goods and services are balanced by: A) government spending. B) taxes. C) fiscal policy. D) the interest rate.

interest rate

When the Fed increases the discount rate, it: increases the reserve to deposit ratio (rr). decreases the reserve to deposit ratio (rr). is likely to increase the monetary base (B). is likely to decrease the monetary base (B).

is likely to decrease the monetary base

The ex ante real interest rate is equal to the nominal interest rate: minus the inflation rate. plus the inflation rate. minus the expected inflation rate. plus the expected inflation rate.

minus the expected inflation rate

Macroeconomists call assets used to make transactions: A) real income. B) nominal income. C) money. D) consumption.

money

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: A) desire to increase prices throughout the economy. B) need to generate revenue to pay for spending. C) responsibility to increase nominal interest rates by increasing expected inflation. D) inability to conduct open-market operations

need to generate revenue to pay for spending

Credit card balances are included in: M1 only. M2 only. both M1 and M2. neither M1 nor M2.

neither M1 nor M2

Credit card balances are included in: A) M1 only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

neither M1 nor M2

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase: real gross domestic product (GDP). real interest rates. nominal interest rates. both saving and investment by the same amount.

nominal interest rates

The rate of inflation is the: A) median level of prices. B) average level of prices. C) percentage change in the level of prices. D) measure of the overall level of prices.

percentage change in the level of prices

Which of these would be called a hyperinflation? Price increases averaged 1% percent per day. The inflation rate was 10 percent per year. Real gross domestic product (GDP) grew at a rate of 12 percent over a year. A stock market index rose by 1,000 points over a year.

price increases averaged 1% per day

The hyperinflation experienced by interwar Germany illustrates how fiscal policy can be connected to monetary policy when government expenditures are financed by: A) new taxes. B) borrowing in the open market. C) printing large quantities of money. D) selling gold.

printing large quantities of money

National saving is: private saving. public saving. private saving plus public saving. private saving minus public saving.

private saving plus public saving

Variables expressed in terms of physical units or quantities are called _____ variables. real nominal endogenous exogenous

real

Compared to typical open-market operations, when engaging in quantitative easing operations conducted by the Federal Reserve between 2007 and 2011, Federal Reserve purchases tended to be _____ securities. safer and shorter-term tax-favored and foreign smaller-denomination and higher-grade riskier and longer-term

riskier and long term

The inconvenience associated with reducing money holdings to avoid the inflation tax is called: menu costs. shoeleather costs. variable yardstick costs. fixed costs

shoeleather costs

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: the Organization of the Petroleum Exporting Countries (OPEC). the U.S. Treasury. the Federal Reserve. private citizens.

the federal reserve

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _ determines real gross domestic product (GDP) and ___ determines nominal GDP. the productive capability of the economy; the money supply the money supply; the productive capability of the economy velocity; the money supply the money supply; velocity

the productive capability of the economy; the money supply

The quantity equation, viewed as an identity, is a definition of the: A) quantity of money. B) quantity of transactions. C) price level. D) transactions velocity of money

transactions velocity of money

All of the following are considered major functions of money except as a: A) medium of exchange. B) way to display wealth. C) unit of account. D) store of value.

way to display wealth