Question 1

What function is money playing in each of these situations:
(a)You walk into a store in Germany and see that all the prices are in euros.
(b)You buy a candy bar for $1.25.
(c)Your Aunt Jane keeps $100 bills tucked into many books in her house.

Accepted Answer

a.unit of account; b...

Question 2

If real money demand increases 5% and real money supply increases 10%,by about how much does the price level change?

Accepted Answer

A)  Falls by 5%.
B)  Unchanged.
C)  Rises by 2%.
D)  Rises by 5%.

Question 3

For something to satisfy the medium-of-exchange function of money,it must be

Accepted Answer

A)  backed by gold.
B)  readily exchangeable for other goods.
C)  issued by a central bank.
D)  an inherently valuable commodity.

Question 4

Which of the following is not part of M1?

Accepted Answer

A)  Demand deposits
B)  Checking accounts
C)  Time deposits
D)  Traveler's checks

Question 5

Velocity is defined as

Accepted Answer

A)  nominal money stock/nominal GDP.
B)  nominal GDP/nominal money stock.
C)  real money stock/real GDP.
D)  mc2.

Question 6

The uncertainty about the return an asset will earn is

Accepted Answer

A)  liquidity.
B)  risk.
C)  time to maturity.
D)  stochastic dominance.

Question 7

M2 includes

Accepted Answer

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

Question 8

Suppose that you could buy a one-year bond today,which has an interest rate of 3%.If you wait a year and buy a one-year bond then,the interest rate will be 4%.Two years from now,a one-year bond is expected to offer an interest rate of 5%.According to the expectations theory of the term structure of interest rates,what is the interest rate on a two-year bond today? What is the interest rate on a three-year bond today?

Accepted Answer

Two-year bond: (3% +...

Question 9

In the early 2000s,lenders began issuing mortgage loans to people who would normally not be qualified to take out loans because they did not meet lending standards.Those borrowers are known as

Accepted Answer

A)  alternative borrowers.
B)  weak borrowers.
C)  subprime borrowers.
D)  credit risks.

Question 10

What happens to real money demand (rise,fall,no change)due to a change in each of the following factors?
(a)A tax on stock market transactions is introduced.
(b)Computerized bond trading reduces transactions costs.
(c)People's average level of wealth rises.
(d)The threat of a recession increases the riskiness of stocks and bonds.
(e)The interest rate paid on checking account balances declines.
(f)The price level falls in a one-time jump.

Accepted Answer

(a)Rises (b)Falls (c...

Question 11

Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?

Accepted Answer

A)  An increase in real income of 0.5%
B)  A decrease in real income of 0.5%
C)  A decline of 1% in the price level
D)  An increase of 1% in the price level

Question 12

What happens to M1 and M2 due to each of the following changes?
(a)You take $500 out of your checking account and put it into a passbook savings account.
(b)You take $1000 out of your checking account and buy traveler's checks.
(c)You take $1500 out of your money-market mutual fund and deposit into your checking account.
(d)You cash in $2000 in savings bonds and invest the money in a certificate of deposit.

Accepted Answer

(a)M1 falls $500,M2 is unchang...

Question 13

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 14

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

Accepted Answer

A)  there is one unit of account.
B)  the goods all weigh about the same.
C)  the goods are all new.
D)  the goods are actively traded through barter.

Question 15

The use of money is more efficient than barter because the introduction of money

Accepted Answer

A)  reduces the need for economic specialization.
B)  reduces the need to exchange goods.
C)  reduces the need for other stores of value.
D)  reduces transaction costs.

Question 16

Suppose the real money demand function is Md/P = 2400 + 0.2 Y - 10,000 (r + πe) .
Assume M = 5000,πe = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md,πe,and Y are unchanged) ?

Accepted Answer

A)  4
B)  5
C)  9
D)  14

Question 17

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

Accepted Answer

A)  purchasing government bonds from the public.
B)  selling government bonds to the public.
C)  selling newly issued government bonds directly to the central bank.
D)  buying newly issued government bonds directly from the central bank.

Question 18

People in other countries want to hold U.S.dollars as a

Accepted Answer

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

Question 19

If real money demand doubles while the nominal money supply 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 20

The least liquid asset on this list is

Accepted Answer

A)  money.
B)  bonds.
C)  houses.
D)  stocks.

Exam 7: The Asset Market, Money, and Prices

Correct Answer
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(a)Rises (b)Falls (c...
View Answer

In the early 2000s,lenders began issuing mortgage loans to people who would normally not be qualified to take out loans because they did not meet lending standards.Those borrowers are known as

Correct Answer
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M2 includes

Correct Answer
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The number of units of one good that trade for one unit of alternative goods can be determined most easily when

Correct Answer
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The least liquid asset on this list is

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

Correct Answer
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Velocity is defined as

Correct Answer
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Correct Answer
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(a)M1 falls $500,M2 is unchang...
View Answer

Suppose the real money demand function is M^d/P = 2400 + 0.2 Y - 10,000 (r + π^e) . Assume M = 5000,π^e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming M^d,π^e,and Y are unchanged) ?

Correct Answer
verified

What function is money playing in each of these situations: (a)You walk into a store in Germany and see that all the prices are in euros. (b)You buy a candy bar for $1.25. (c)Your Aunt Jane keeps $100 bills tucked into many books in her house.

Correct Answer
verified
a.unit of account; b...
View Answer

People in other countries want to hold U.S.dollars as a

Correct Answer
verified

For something to satisfy the medium-of-exchange function of money,it must be

Correct Answer
verified

Correct Answer
verified
Two-year bond: (3% +...
View Answer

If real money demand increases 5% and real money supply increases 10%,by about how much does the price level change?

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not part of M1?

Correct Answer
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A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

Correct Answer
verified

The uncertainty about the return an asset will earn is

Correct Answer
verified

The use of money is more efficient than barter because the introduction of money

Correct Answer
verified

Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?

Correct Answer
verified

Exam 7: The Asset Market, Money, and Prices

Correct Answerverified(a)Rises (b)Falls (c...View AnswerShow Answer

In the early 2000s,lenders began issuing mortgage loans to people who would normally not be qualified to take out loans because they did not meet lending standards.Those borrowers are known as

Correct AnswerverifiedShow Answer

M2 includes

Correct AnswerverifiedShow Answer

The number of units of one good that trade for one unit of alternative goods can be determined most easily when

Correct AnswerverifiedShow Answer

The least liquid asset on this list is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Velocity is defined as

Correct AnswerverifiedShow Answer

Correct Answerverified(a)M1 falls $500,M2 is unchang...View AnswerShow Answer

Suppose the real money demand function is Md/P = 2400 + 0.2 Y - 10,000 (r + πe) . Assume M = 5000,πe = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming Md,πe,and Y are unchanged) ?

Correct AnswerverifiedShow Answer

What function is money playing in each of these situations: (a)You walk into a store in Germany and see that all the prices are in euros. (b)You buy a candy bar for $1.25. (c)Your Aunt Jane keeps $100 bills tucked into many books in her house.

Correct Answerverifieda.unit of account; b...View AnswerShow Answer

People in other countries want to hold U.S.dollars as a

Correct AnswerverifiedShow Answer

For something to satisfy the medium-of-exchange function of money,it must be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTwo-year bond: (3% +...View AnswerShow Answer

If real money demand increases 5% and real money supply increases 10%,by about how much does the price level change?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not part of M1?

Correct AnswerverifiedShow Answer

A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by

Correct AnswerverifiedShow Answer

The uncertainty about the return an asset will earn is

Correct AnswerverifiedShow Answer

The use of money is more efficient than barter because the introduction of money

Correct AnswerverifiedShow Answer

Which of the following is most likely to lead to an increase of 1% in the nominal demand for money?

Correct AnswerverifiedShow Answer

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(a)Rises (b)Falls (c...
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(a)M1 falls $500,M2 is unchang...
View Answer

Suppose the real money demand function is M^d/P = 2400 + 0.2 Y - 10,000 (r + π^e) . Assume M = 5000,π^e = .03,and Y = 5000.If the price level were to decrease from 2.5 to 2.0,then the real interest rate would decrease by how many percentage points (assuming M^d,π^e,and Y are unchanged) ?

Correct Answer
verified

Correct Answer
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a.unit of account; b...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
Two-year bond: (3% +...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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