Econ Final assigment 8

According to the quantity theory of money, the price level can be written as:

P^*_t = (bar Mt bar Vt / bar Yt)

Using the quantity theory of money, we can calculate inflation using ________, under the assumption that

Pie t = % delta Mt - % delta Yt ; velocity is constant

The Board of Governors of the Federal Reserve (Classes 10/31-11/2) a. have staggered 14 year terms. c. were the original policy making body of the FED b. have seven members. d. are true for all of the answers.

d. are true for all of the answers.

Defining Yt as current output, bar Yt as potential output, and Yât as short-run fluctuations, which of the following equations is correct?

Yt = bar Yt + Yt (with sqwiggly)

Keynesian (original school) economists argue: a. velocity is unstable. c. monetary policy can influence real output in the long-run. b. monetary policy is a weak policy tool. d. all of the answers are true.

d. all of the answers are true.

Using the quantity equation, if Mt = $1000, Pt = 1.1, and Yt = 100,000 the the velocity is

110

With unanticipated inflation: a. creditors are hurt unless they have an indexed contract, because they get less than they expected in real terms. b. debtors with an indexed contract are hurt, because they pay more than they contracted for in nominal terms. c. debtors with an unindexed contract lose, because they pay exactly what they contracted for in nominal terms. d. creditors with indexed contracts gain, because they receive more than they contracted for in nominal terms. e. debtors with an indexed contract are hurt, because they pay more than they contracted for in real terms.

a. creditors are hurt unless they have an indexed contract, because they get less than they expected in real terms.

The short-run model determines ________ and ________. a. current output; current inflation d. unemployment; potential output b. current output; long-run inflation e. potential output; unemployment c. unemployment; current inflation

a. current output; current inflation

If you decide to buy a house with an adjustable-rate mortgage (ARM), you are: a. exposing yourself to inflation risk. b. reducing your inflation risk. c. passing inflation risk to the lender. d. taking on some of the lender's inflation risk. e. increasing your mortgage payment.

a. exposing yourself to inflation risk.

According to the government's budget constraint, if the government spends more than it generates in taxes, it can raise revenues by: a. printing money. b. decreasing its debt. c. lowering interest rates. d. privatizing. e.increasing interest rates.

a. printing money.

The cure for hyperinflation is: a. reducing money growth. d. seignorage. b. maintaining government spending. e. All of these answers are correct. c. lower taxes.

a. reducing money growth.

The monetary base consists of: a. reserves and currency. b. M1 plus M2. c. only M1. d. gold reserves plus currency. e. a country's holdings of foreign and domestic currencies.

a. reserves and currency.

Potential output is defined as: a. the amount of total output if all inputs were utilized at their long-run, sustainable levels (i.e. long-run maximum sustainable level of output). b. what an economy produces when it is booming. c. the current level of output. d. the amount of output where inflation is zero. e. the level of output when unemployment is 10 percent.

a. the amount of total output if all inputs were utilized at their long-run, sustainable levels (i.e. long-run maximum sustainable level of output).

If long-run real GDP growth is determined by real changes in the economy, the quantity theory of money implies that changes in: a. the money growth rate lead one-for-one to changes in the inflation rate in the long run. b. the money growth rate lead one-for-one to changes in the inflation rate, but only in the short run. c. velocity lead one-for-one to changes in the inflation rate. d. the money growth rate lead to a greater than one-for-one change in the inflation rate in the long run. e. None of these answers is correct.

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

In our balloon analogy (Classes 10/31-11/2), the air being pumped into the balloon represents: a. the money supply. c. the monetary base. b. real or potential GDP. d. total exports.

a. the money supply.

Keynesian economists believe that consumers have money illusion, that is: a. they act on changes in nominal variables instead of real variables. c. they act on changes in real variables instead of nominal variables. b. they suffer from the illusion that they will be rich. d. they are fooled by the central bank.

a. they act on changes in nominal variables instead of real variables.

If some goods' prices adjust more quickly than others during a period of high inflation, there is: a. a perfect short-run allocation of resources. b. a short-run misallocation of resources. c. no inflation. d. a hyperinflation. e. a deflation.

b. a short-run misallocation of resources.

Money made with silver, gold, and chocolate are examples of ________ money. a. fiat b. commodity c. backed d. government e. none of these

b. commodity

In our balloon analogy (Classes 10/31-11/2), a hole in the balloon represents.: a. fiscal policy. c. a hole in the balloon. b. financial crisis. d. the thickness of the skin.

b. financial crisis.

In our balloon analogy (Classes 10/31-11/2), fiscal policy represents: a. the money supply. c. a hole in the balloon. b. heating or cooling the air molecules. d. the thickness of the skin.

b. heating or cooling the air molecules.

Which of the following has NO effect on long-run economic growth? a. institutions b. money c. productivity d. institutions e. population

b. money

In the quantity equation, the value PtYt is: a. real GDP. b. nominal GDP. c. aggregate expenditure. d. the velocity of money e. real money

b. nominal GDP.

Fiat money has value because: a. it is backed by gold. b. people believe it has value. c. it has intrinsic value. d. it is backed by silver e. none of these

b. people believe it has value

The real interest rate describes the: a. net return to government bonds. b. rate of return adjusted for inflation. c. rate of return in units of a currency. d. return with an interest rate equal to zero. e. rate of return in real goods.

b. rate of return adjusted for inflation.

In our balloon analogy (Classes 10/31-11/2), the skin of the balloon represents: a. the money supply. b. real or potential GDP. c. the monetary base. d. total exports.

b. real or potential GDP.

John Maynard Keynes is famous for saying, "In the long run ________." a. there is no tomorrow b. we are all dead c. the only thing we have to fear is fear itself d. the study of economics will be redundant e. we will tear down this wall

b. we are all dead

A government that relies on seignorage to finance excess government expenditures is the foundation for the following quote: a. "Inflation is always zero in the long run." b. "Inflation is always and everywhere a monetary phenomenon." c. "Inflation is always and everywhere a fiscal phenomenon." d. "Velocity growth should be equal to 2 percent in the long run." e. "Velocity is always constant."

c. "Inflation is always and everywhere a fiscal phenomenon."

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. a. $90 b. $110 c. $100 d. $105 e. $95

c. $100

According to the classical dichotomy, in the long run there is: a. accelerating economic growth. b. perfect connectivity between the nominal and real sides of the economy. c. complete separation of the nominal and real sides of the economy. d. no growth after the economy reaches the steady state. e. zero inflation.

c. complete separation of the nominal and real sides of the economy.

Money that has no intrinsic value except as money is called ________ money. a. bonded b. commodity c. fiat d. intristic e. none of these

c. fiat

Let R denote the real interest rate and i denote the nominal interest rate; these two interest rates are related by: a. i = pi. b. i = R - pi c. i = R + pi. d. i = R / pi e. none of these

c. i = R + pi.

The essence of the quantity theory of money is that: a. the price level is indeterminate. b. in the long run, the only determinant of the price level is the interest rate. c. in the long run, a key determinant of the price level is the money supply. d. only the central bank knows what the price level is. e. money cannot pin down the price level.

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

A risk a bank takes on by offering long-term fixed interest rate loans is the: a. loss of real returns due to anticipated inflation. b. gain that could be made from offering short-term loans. c. loss of real returns due to an unexpected inflation surprise. d. gains that could have been made if the money were invested in an alternative asset. e. loss of customers wanting flexible interest loans.

c. loss of real returns due to an unexpected inflation surprise.

The quote "Inflation is always and everywhere a monetary phenomenon" is attributed to: a. Karl Marx. b. Thomas Sargent. c. Milton Friedman d. Alan Greenspan. e. David Ricardo.

c. milton friedman

The data presented in Figure 8.1 confirm that the relationship between inflation and money growth is ________, as suggested by ________. a. positive; the Fisher equation b. positive; money neutrality c. positive; the quantity theory of money d. negative, the quantity theory of money e. none of these

c. positive, the quantity theory of money

The right to seignorage is the right to: a. make coins. b. raise tax revenues. c. print money. d. borrow from the public e. raise and army

c. print money.

M2 includes M1 and: a. large time deposits. b. overnight repurchase agreements. c. savings accounts. d. long-term bonds e. gold reserves

c. savings accounts

Current output is defined as: a. the amount of output when inflation is about 2 percent. b. what an economy produces when it is at capacity. c. the amount of total output at the current level of input utilization. d. the amount of total output if all inputs are utilized at their long-run sustainable levels. e. the amount of output where unemployment is zero.

c. the amount of total output at the current level of input utilization.

The velocity of money is: a. how quickly money can be printed. b. how quickly individuals spend their incomes. c. the average number of times a dollar is used in a transaction per year. d. how many times individuals are paid per year. e. None of these answers is correct.

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

Practically, in the long run the real interest rate is equal to: a. a savings account. b. the rate of return to long-term bonds. c. the marginal product of capital. d. return to stock markets e. the return to housing

c. the marginal product of capital

If the real GDP growth is 4 percent per year, the money growth rate is 6 percent, and velocity is constant, using the quantity theory, the inflation rate is ________ percent. a. 6 b. 4 c. -2 d. 2 e. -4

d. 2

The velocity of money can be calculated from the quantity equation with: a. PtYt . b. PtYt Mt . c. Mt /Pt Yt . d. PtYt / Mt e. Mt

d. PtYt / Mt

If not all price setters are convinced that high inflation rates will end soon, there is/are: a. price staggering. b. a transfer of wealth from one group to another. c. substantial menu costs. d. a coordination problem. e. negative real interest rates.

d. a coordination problem.

Liquidity is a measure of: a. the monetary base. b. how many coins are in circulation. c. how quickly coins can be melted down. d. how quickly an asset can be converted to currency. e. the amount of reserves.

d. how quickly an asset can be converted to currency.

With an inflation tax: a. everybody loses. b. all individuals in an economy feel the pressures equitably. c. there is a redistribution of income from owners of real assets to income earners. d. there is a redistribution of income from currency holders to owners of real assets. e. the government has a lot of debt to repay.

d. there is a redistribution of income from currency holders to owners of real assets.

To minimize what was believed to be a wage-price spiral, the ________ administration ________. a. Reagan; increased corporate income b. Carter; increased interest rates c. Clinton; released oil from the strategic reserves d. first Bush; increased taxes e. Nixon; imposed price controls

e. Nixon; imposed price controls

________ prevent(s) governments from being tempted to use seignorage excessively. a. Gold reserves b. The power of bond markets c. The government budget constraint d. future generations e. central bank

e. central bank

Which of the following is NOT an example of a short-term macroeconomic shock? a. political unrest d. increased military spending b. a change in the tax code e. None of these answers is correct. c. a drought

e. none of these

The long-run model determines ________ output and ________. a. current; unemployment d. potential; potential inflation b. potential; unemployment e. potential; long-run inflation c. current; long-run inflation

e. potential; long-run inflation

When inflation is high and people are forced to make more trips to the bank, this is often referred to as: a. marginal social cost. b. hyperinflation. c. the double coincidence of wants. d.the neutrality of money e. shoe-leather costs

e. shoe-leather costs