ECO 3311 - PS4

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

-4 percent.

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.

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

3

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

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

Open-market operations are:

Federal Reserve purchases and sales of government bonds.

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

Federal Reserve.

Money market mutual fund shares are included in:

M2 only.

If the Fed announces that it will raise the money supply in the future but does not change the money supply today:

both the nominal interest rate and the current price level will increase.

All of the following are costs of fully expected inflation except that expected inflation:

causes lower real wages.

Demand deposits are funds held in:

checking accounts.

A country that is on a gold standard primarily uses:

commodity money.

If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level.

decrease; increase

If inflation is 6 percent and a worker receives a 4 percent wage increase, then the worker's real wage:

decreased 2 percent.

When a person purchases a 90-day Treasury bill, he or she cannot know the:

ex post real interest rate.

According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the:

expected inflation rate.

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

fiat

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

hyperinflation.

According to the classical theory of money, inflation does not make workers poorer because wages increase:

in proportion to the increase in the overall price level.

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be:

increasing.

The real interest rate is equal to the:

nominal interest rate minus the inflation rate.

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except:

relative prices do a better job of reflecting true scarcity.

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

unit of account.

All of the following are considered major functions of money except as a:

way to display wealth.