Econ chapter 8

You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a:

6 percent money supply growth.

Suppose you put $100 in the bank on January 1, 2017. If the annual nominal interest rate is 5 percent and the inflation rate is 5 percent, you will be able to buy ________ worth of inflation-adjusted goods on January 1, 2018.

$100

The nominal interest rate is:

the interest rate not adjusted for inflation. the "advertised" interest rate. a description of the return in units of currency.

Practically, in the long run the real interest rate is equal to:

the marginal product of capital

If long-run real GDP growth is determined by real changes in the economy, the quantity theory of money implies that changes in:

the money growth rate lead one-for-one to changes in the inflation rate in the long run.

If the inflation rate is larger than the nominal interest rate:

the real interest rate is negative

According to the classical dichotomy, in the long run there is:

complete separation of the nominal and real sides of the economy

According to the quantity theory of money, the price level is:

determined by the ratio of the effective quantity of money to the volume of goods.

The essence of the quantity theory of money is that:

in the long run, a key determinant of the price level is the money supply.

The data presented in Figure 8.1 confirm that the relationship between inflation and money growth is ________, as suggested by ________.

positive; the quantity theory of money

The real interest rate describes the:

rate of return adjusted for inflation.

In the quantity theory of money, the:

real GDP, velocity, and money supply are exogenous.

Compared to the nominal interest rate, the real interest rate is:

relatively stable

The monetary base consists of:

reserves and currency

The velocity of money is:

the average number of times a dollar is used in a transaction per year.

The quantity theory states that the nominal GDP is equal to:

the effective amount of money used in purchases.

If you withdraw $100 from your checking account and deposit it in your savings account:

M1 falls and M2 is unchanged