Macro Chapter 5
If the quantity of real money balances is kY, where k is a constant, then velocity is
1/k
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 money 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
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
Real money balances equals
amount of money expressed in terms of the quantity of goods and services it can purchase
"Inflation tax" means that
as the price level rises, the real value of money held by the public decreases
The preferences of households determine the
currency-deposit ratio
When people want to hold _____ money, the income velocity of money increases, and the demand parameter k _____
less, decreases
Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______.
small ; infrequently
The real interest rate is equal to the
the nominal interest rate minus the inflation rate
The Quantity Theory of Money assumes that
velocity is constant
Consider the money demand function that takes the form M / P = 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 (10-3)
The money supply will decrease if the
Currency deposit ratio increases
If the Federal Reserve wishes to increase the money supply, it should
Decrease the discount rate
The demand for real money balances is generally assumed to
Increase as real income increases
The ratio of the money supply to the monetary base is
The money multiplier
In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.
b. the productive capability of the economy; the money supply
When the Fed makes and open market sale, it
decreases the monetary base
If many banks fail, this is likely to
increase the ratio of currency to deposits