Question 1

Cigarettes were used as money among the prisoners of war in the German camps at the end of World War II because

Accepted Answer

A)  cigarettes could be used as a medium of exchange.
B)  cigarettes could be used as store of value.
C)  cigarettes could be used as unit of accounts.
D)  all of the above.

Question 2

Suppose that the money supply and real GDP in 2006 were $80 billion and $220 billion,respectively.In 2007,the central bank increased money supply to $88 billion and real GDP rose to $231 billion.Assume the income elasticity of money is 0.5.
a.What are the rates of growth in money supply and real GDP?
b.What is the inflation rate?
c.If,in 2008,the money supply level remains the same level as 2007,but real GDP grows at another 5 percent,what will be the inflation rate in 2008?

Accepted Answer

a.Money supply growth = 10 percent,the r...

Question 3

For a given value of real output,the real interest rate,and the expected inflation rate,the economy's price level depends on

Accepted Answer

A)  nominal money supply.
B)  GDP.
C)  real demand for money.
D)  the unemployment rate.

Question 4

Calculate the appropriate (income or interest)elasticity of money demand for each of the following cases:
a.Income rises 2% while real money demand rises 1%
b.Interest rate rises from 4% to 5% while real money demand falls 1%
c.Income rises 3% and the interest rate rises from 5% to 6%,while real money demand rises 1% during one year;in another year,income falls 3.5%,the interest rate falls from 4% to 3%,while real money demand falls 1%

Accepted Answer

Use the formula %△mᵈ = ηY%△Y + ηᵢ%△i
a.I...

Question 5

One of money's primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

Accepted Answer

A)  store of value.
B)  unit of account.
C)  medium of exchange.
D)  standard of deferred payment.

Question 6

Suppose the nominal money supply is 5000 and real money demand is 2500.What is the price level?

Accepted Answer

A)  200
B)  20
C)  2
D)  1/2

Question 7

If the nominal money supply doubles while real money demand is unchanged,what happens to the price level?

Accepted Answer

A)  The price level increases by a factor of four.
B)  The price level doubles.
C)  The price level is unchanged.
D)  The price level falls by one-half.

Question 8

If the income elasticity of money demand is 3/4,income increases 8%,and real money supply increases 10%,by about how much does the price level change?

Accepted Answer

A)  falls 4%
B)  unchanged
C)  rises 4%
D)  rises 6%

Question 9

M2 includes

Accepted Answer

A)  large-denomination time deposits.
B)  institutional MMMFs.
C)  commercial paper.
D)  M1.

Question 10

Which of the following is the most likely explanation for the causes behind the fall in the demand for M1 in the 1970s?

Accepted Answer

A)  Higher prices in the 1970s reduced the demand for money.
B)  Government deficits increased the demand for money,draining it out of the private sector.
C)  Financial innovations,such as money market mutual funds,changed the demand for narrow definitions of money such as M1.
D)  Increases in Eurodollar deposits drew money out of the banking system.

Question 11

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Accepted Answer

A)  Money demand declines first,then rises when inflation increases.
B)  Money demand rises.
C)  The overall effect is ambiguous.
D)  Money demand declines.

Question 12

Suppose the income elasticity of money demand is 0.75 and the interest elasticity of money demand is -0.2.By what percentage does real money demand change in each of the following circumstances?
a.Income rises 2%.
b.The interest rate rises from 4% to 5%.
c.Income falls 4%.
d.The interest rate falls from 6% to 4%.
e.Income rises 3% at the same time that the interest rate rises from 2% to 3%.

Accepted Answer

Use the formula %△mᵈ...

Question 13

When a government prints money to finance its expenditures,it is likely to cause

Accepted Answer

A)  unemployment.
B)  inflation.
C)  deflation.
D)  reductions in the use of barter.

Question 14

If the quantity of money demanded exceeds the quantity of money supplied,then

Accepted Answer

A)  the quantity of nonmonetary assets demanded exceeds the quantity supplied.
B)  the quantity of nonmonetary assets supplied exceeds the quantity demanded.
C)  the quantity of nonmonetary assets demanded will still equal the quantity supplied,all else being equal.
D)  you can make no conclusions about the relative supply and demand of nonmonetary assets.

Question 15

Between 1992 and 2002,Mr.Junius Morgan's real income increased from $100,000 to $200,000.All else being equal,his real demand for money probably

Accepted Answer

A)  decreased.
B)  increased,but by less than the increase in real income.
C)  increased proportionately to the increase in real income.
D)  increased by more than the increase in real income.

Exam 7: The Asset Market, money, and Prices

Correct Answer
verified
a.Money supply growth = 10 percent,the r...
View Answer

Suppose the nominal money supply is 5000 and real money demand is 2500.What is the price level?

Correct Answer
verified

If the income elasticity of money demand is 3/4,income increases 8%,and real money supply increases 10%,by about how much does the price level change?

Correct Answer
verified

M2 includes

Correct Answer
verified

Between 1992 and 2002,Mr.Junius Morgan's real income increased from $100,000 to $200,000.All else being equal,his real demand for money probably

Correct Answer
verified

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Correct Answer
verified

Cigarettes were used as money among the prisoners of war in the German camps at the end of World War II because

Correct Answer
verified

If the nominal money supply doubles while real money demand is unchanged,what happens to the price level?

Correct Answer
verified

When a government prints money to finance its expenditures,it is likely to cause

Correct Answer
verified

One of money's primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

Correct Answer
verified

Correct Answer
verified
Use the formula %△mᵈ = ηY%△Y + ηᵢ%△i
a.I...
View Answer

If the quantity of money demanded exceeds the quantity of money supplied,then

Correct Answer
verified

For a given value of real output,the real interest rate,and the expected inflation rate,the economy's price level depends on

Correct Answer
verified

Correct Answer
verified
Use the formula %△mᵈ...
View Answer

Which of the following is the most likely explanation for the causes behind the fall in the demand for M1 in the 1970s?

Correct Answer
verified

Exam 7: The Asset Market, money, and Prices

Correct Answerverifieda.Money supply growth = 10 percent,the r...View AnswerShow Answer

Suppose the nominal money supply is 5000 and real money demand is 2500.What is the price level?

Correct AnswerverifiedShow Answer

If the income elasticity of money demand is 3/4,income increases 8%,and real money supply increases 10%,by about how much does the price level change?

Correct AnswerverifiedShow Answer

M2 includes

Correct AnswerverifiedShow Answer

Between 1992 and 2002,Mr.Junius Morgan's real income increased from $100,000 to $200,000.All else being equal,his real demand for money probably

Correct AnswerverifiedShow Answer

If there is a financial panic and increased uncertainty about the returns in the stock market and bond market,what is the likely effect on money demand?

Correct AnswerverifiedShow Answer

Cigarettes were used as money among the prisoners of war in the German camps at the end of World War II because

Correct AnswerverifiedShow Answer

If the nominal money supply doubles while real money demand is unchanged,what happens to the price level?

Correct AnswerverifiedShow Answer

When a government prints money to finance its expenditures,it is likely to cause

Correct AnswerverifiedShow Answer

One of money's primary roles in the economy comes from the use of money to transfer purchasing power to the future.This role of money is called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUse the formula %△mᵈ = ηY%△Y + ηᵢ%△ia.I...View AnswerShow Answer

If the quantity of money demanded exceeds the quantity of money supplied,then

Correct AnswerverifiedShow Answer

For a given value of real output,the real interest rate,and the expected inflation rate,the economy's price level depends on

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUse the formula %△mᵈ...View AnswerShow Answer

Which of the following is the most likely explanation for the causes behind the fall in the demand for M1 in the 1970s?

Correct AnswerverifiedShow Answer

Correct Answer
verified
a.Money supply growth = 10 percent,the r...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Use the formula %△mᵈ = ηY%△Y + ηᵢ%△i
a.I...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Use the formula %△mᵈ...
View Answer

Correct Answer
verified