MacroEcon

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$600billion.

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion.

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ divided by ______ multiplied by B.

(cr + 1); (cr + rr)

A bank balance sheet consists of only the following items: Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?

+$1,000

If the nominal interest rate is 1 percent and the inflation rate is 6 percent, the real interest rate is:

-5 percent.

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:

0.08

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

1/k.

If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

10 percent

Making use of Okun's law, it may be computed that if the Fed reduces the money supply 5 percent and the quantity theory of money is true, then the unemployment rate will rise about:

2.5 percent in the short run but will return to its natural rate in the long run.

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 balances in the economy equal:

20,000.

Consider the money demand function that takes the form (M/P)d = Y/4i, where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy?

4i

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

Consider the money demand function that takes the form (M/P)d = 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 percent

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent.

7..

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent).

9

The value of banks' owners' equity is called bank:

Capital

The quantity of money in the United States is essentially controlled by the:

Federal Reserve.

The size of monetary base is determined by:

The Federal Reserve

A policy that decreases the job separation rate _____ the natural rate of unemployment.

Will decrease

To make a trade in a barter economy requires:

a double coincidence of wants.

The rate of inflation is the:

percentage change in the level of prices.

Wage rigidity:

prevents labor demand and labor supply from reaching the equilibrium level.

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______.

prices; output

The hyperinflation experienced by interwar Germany illustrates how fiscal policy can be connected to monetary policy when government expenditures are financed by:

printing large quantities of money.

The one-to-one relation between the inflation rate and the nominal interest rate, the Fisher effect, assumes that the:

real interest rate is constant.

Stabilization policy refers to policy actions aimed at:

reducing the severity of short-run economic fluctuations.

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

remains the same

If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

reserves divided by rr.

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.

sales; raise

To reduce the money supply, the Federal Reserve:

sells government bonds.

When the demand for money parameter, k, is large, the velocity of money is ______ and money is changing hands ______

small; infrequently

Unemployment insurance increases the amount of frictional unemployment by:

softening the economic hardship of unemployment.

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment.

structural; frictional

The natural rate of unemployment is:

the average rate of unemployment around which the economy fluctuates.

If the nominal interest increases, then:

the demand for money decreases.

Which of the following is an example of a demand shock?

the introduction and greater availability of credit cards

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

In a steady state:

the number of people finding jobs equals the number of people losing jobs.

When the real wage is above the level that equilibrates supply and demand:

the quantity of labor supplied exceeds the quantity demanded.

All of the following are reasons for frictional unemployment except:

unemployed workers accept the first job offer that they receive.

In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month.

unemployed; employed

If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change ______ in the short run and change ______ in the long run.

both prices and output; only prices

Short-run fluctuations in output and employment are called:

business cycles.

To increase the money supply, the Federal Reserve:

buys government bonds.

The money supply consists of:

currency plus demand deposits.

The money supply will decrease if the:

currency-deposit ratio increases

The preferences of households determine the:

currency-deposit ratio.

The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would:

decrease by 1 percent.

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased:

decreases

The income velocity of money increases and the money demand parameter k ______ when people want to hold ______ money.

decreases; less

Liabilities of banks include:

demand deposits.

Policies to substantially reduce the natural rate of unemployment should be targeted at:

discouraged workers.

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left.

Money that has no value other than as money is called ______ money.

fiat

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

Unemployment caused by the time it takes workers to search for a job is called ______ unemployment.

frictional

People use money as a store of value when they:

hold money to transfer purchasing power into the future.

A rate of inflation that exceeds 50 percent per month is typically referred to as a(n):

hyperinfaltion

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent:

in the long run but lead to unemployment in the short run.

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate must:

increase by 1 percent.

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will:

increase by more than $1 million.

A reduction in the demand for money is the equivalent of a(n) _______ in velocity and will shift the aggregate demand curve to the _____.

increase; right

When the Fed increases the interest rate paid on reserves, it:

increases the reserve-deposit ratio (rr).

When Henry Ford paid his workers $5 per day when the prevailing wage was between $2 and $3 a day:

it raised the efficiency of his workers.

One reason for unemployment is that:

it takes time to match workers and jobs.

Sectoral shifts:

make frictional employment inevitable.

Government policies directed at reducing frictional unemployment include:

making unemployment insurance 100 percent experience rated.

The real interest rate is equal to the nominal interest rate:

minus the inflation rate.

The monetary base of Moneyland is $500 million. The current-deposit ratio (cr) is 0.2 and reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

mm= (CR + 1)/(CR+RR) mm = 3 M= mm * B M = 1500

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.

monetary base; money multiplier; monetary base

Macroeconomists call assets used to make transactions:

money

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.

negative; price level

Okun's law is the ______ relationship between real GDP and the ______.

negative; unemployment rate

The opportunity cost of holding money is the:

nominal interest rate.

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______.

nominal; high

If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

output and employment will decrease in the short run.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

Shoe-leather costs.

Which of the following is the best example of structural unemployment?

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

Which of the following would most likely be called a hyperinflation?

Price increases averaged 300 percent per year.

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate.

below; toward