Q21 Duringhyperinflations, the velocity of money generally increases because A money is no longer a good store ofvalue, so people spend it immediately B money is better store ofvalue, so people spend it immediately C money is no longer a good store ofvalue, so people spend it slowly D economic agents have irrational expectations Q22 Suppose workers negotiate for a 5 percent nominal wage increase and expect a 1 percent inflation rate If the actual inflation rate is 6percent, then workers A are better off and firms are worse off B are worse off and firms are better off C and firms are both worse off D and firms are both better off Q23 The Fed can change the money supply by buying or selling longterm Treasury bonds Purchasing longterm securities is commonly called A open market operations B discount operations C quantitative easing D federal funds speculation Q24 An open market by the Fed increases the moneysupply, which leads to interest rates and increased GDP A purchase increased B sale increased C sale decreased D purchase decreased Q25 Compared to othercountries, inflation in the United States has been A always worse B about the same C generally more severe D generally less severe Q26 In order for a barter transaction to besuccessful, there must be a A market for the goods B federal tax law in effect C double coincidence of wants D high demand for a certain item Q27 Recall the Application about the theory of secular stagnation to answer the following question Who recently resurrected the theory of secularstagnation A Lawrence Summers B Ben Bernanke C Robert Rubin D Janet Yellen Q28 In the increases in the supply of money will A longrun raise total demand and output B shortrun decrease total demand and output C shortrun raise total demand and output D longrun lead to lower prices Q29 Traveler's checks are included in A M1 only B M2 only C both M1 and M2 D neither M1 nor M2 Q30 Nations that are unable to borrow money to pay for budget deficits often resort to A destroying money already in circulation B lowering taxes C purchasing bonds issued by other nations D printing new money to cover the deficit Q31 The classic political business cycle would have a politician following A contractionary policies before and after an election B contractionary policies before anelection, and expansionary policies after the election C expansionary policies before and after an election D expansionary policies before anelection, and contractionary policies after the election Q32 What impact does theFed's raising the interest rate have on the money supply and on the pricelevel A An increase in interest rates reduces the moneydemand, which will slow the growth in prices B An increase in interest rates lowers the money supply and raises the moneydemand, which will neutralize price increases C An increase in interest rates raises the money supply and eventually reduces prices D An increase in interest rates will increase investment spending andGDP, which will lower prices Q33 What gives money value under a fiatsystem A Fiat money is the same as Treasury bonds B Fiat money is backed by gold C The supply of fiat money is controlled by the government D Fiat money is also a commodity Q34 The term classical economist was first used by to differentiate his work from the work of earlier economists A David Ricardo B Jean Baptiste Say C John Maynard Keynes D John Stuart Mill Q35 A decrease in the level of real GDP in the economy leads to A a rightward movement along the demand for money curve B a leftward movement along the demand for money curve C a rightward shift in the demand for money curve D a leftward shift in the demand for money curve Q36 All elseequal, if workers confuse real and nominalmagnitudes, they are experiencing A money illusion B fiscal policy C monetary confusion D expectations of inflation Q37 When the Federal Reserve increases interestrates, investment spending and GDP A increases decreases B decreases increases C decreases decreases D increases increases Q38 Increased investment spending in the economy would be a possible result of A an open market purchase of bonds by the Fed B an increase in interest rates C a decrease in the money supply D an open market sale of bonds by the Fed Q39 A decrease in the price level in the economy leads to A a rightward movement along the demand for money curve B a leftward movement along the demand for money curve C a leftward shift in the demand for money curve D a rightward shift in the demand for money curve Q40 GDP for the nation of Economia is currently above potential output If the adjustment to the longrun equilibrium occursslowly, the government of Economia is most likely to pursue a policy of A decreasing government spending to increase aggregate demand B increasing government spending to decrease aggregate demand C taking no action and allowing the economy to adjust naturally D decreasing the money supply to decrease aggregate demand Q41 Suppose a bank has$300,000 indeposits, a reserve ratio of 5percent, and bank reserves of$45,000 This bank can make new loans in the amount of A $345,000 B $45,000 C $30,000 D $15,000 Q42 An increase in the price level in the economy leads to A a rightward shift in the demand for money curve B a leftward movement along the demand for money curve C a leftward shift in the demand for money curve D a rightward movement along the demand for money curve Q43 An open market purchase by the Fed A decreases the total amount of reserves in the banking system B does not change the total amount of reserves in the banking system C increases the total amount of reserves in the banking system D causes the reserve requirement to fall Q44 Which of the following serves as the central bank for the UnitedStates A the Federal Reserve System B the Federal Deposit Insurance Corporation C the Treasury Department D the Congress Q45 Increases in unanticipated inflation will impact employment levels and would therefore tend to cause A unemployment to fall below the natural rate B the natural rate of unemployment to rise C the natural rate of unemployment to fall D unemployment to rise above the natural rate Q46 Crowding out refers to A a decrease in investment caused by an increase in government spending B a decrease in investment caused by a decrease in government spending C an increase of investment caused by a decrease in government spending D an increase of investment caused by an increase in government spending Q47 Suppose GDP the level of potential output We would expect to see unemployment, risingwages, and rising prices A isbelow low B isbelow high C exceeds low D exceeds high Q48 If nominal GDP is$16 trillion and the money supply is$4 trillion, then the velocity of money is A 0 25 B 4 C 12 D 20 Q49 If the actual interest rate in the money market is higher than the equilibrium interestrate, there would be an excess supply of money True False Q50 Suppose the inflation rate is 3 percent this year If nominal wages increase by 5percent, real wages will A decrease by 3 percent B increase by 5 percent C increase by 2 percent D decrease by 2 percent

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Q21. Duringhyperinflations, the velocity of money generally increases because A. money is no longer a good store ofvalue, so people spend it immediately. B. money

Q21.

Duringhyperinflations, the velocity of money generally increases because

money is no longer a good store ofvalue, so people spend it immediately.

money is better store ofvalue, so people spend it immediately.

money is no longer a good store ofvalue, so people spend it slowly.

economic agents have irrational expectations.

Q22. Suppose workers negotiate for a 5 percent nominal wage increase and expect a 1 percent inflation rate. If the actual inflation rate is 6percent, then workers

are better off and firms are worse off.

are worse off and firms are better off.

and firms are both worse off.

and firms are both better off.

Q23. The Fed can change the money supply by buying or selling longterm Treasury bonds. Purchasing longterm securities is commonly called

open market operations.

discount operations.

quantitative easing.

federal funds speculation.

Q24. An open market________ by the Fed increases the moneysupply, which leads to________ interest rates and increased GDP.

purchase; increased

sale; increased

sale; decreased

purchase; decreased

Q25. Compared to othercountries, inflation in the United States has been

always worse.

about the same.

generally more severe.

generally less severe.

Q26. In order for a barter transaction to besuccessful, there must be a

market for the goods.

federal tax law in effect.

double coincidence of wants.

high demand for a certain item.

Q27. Recall the Application about the theory of secular stagnation to answer the following question.

Who recently resurrected the theory of secularstagnation?

Lawrence Summers

Ben Bernanke

Robert Rubin

Janet Yellen

Q28. In the________ increases in the supply of money will________.

longrun; raise total demand and output

shortrun; decrease total demand and output

shortrun; raise total demand and output

longrun; lead to lower prices

Q29. Traveler's checks are included in

M1 only.

M2 only.

both M1 and M2.

neither M1 nor M2.

Q30. Nations that are unable to borrow money to pay for budget deficits often resort to

destroying money already in circulation.

lowering taxes.

purchasing bonds issued by other nations.

printing new money to cover the deficit.

Q31. The classic political business cycle would have a politician following

contractionary policies before and after an election.

contractionary policies before anelection, and expansionary policies after the election.

expansionary policies before and after an election.

expansionary policies before anelection, and contractionary policies after the election

Q32. What impact does theFed's raising the interest rate have on the money supply and on the pricelevel?

An increase in interest rates reduces the moneydemand, which will slow the growth in prices.

An increase in interest rates lowers the money supply and raises the moneydemand, which will neutralize price increases.

An increase in interest rates raises the money supply and eventually reduces prices.

An increase in interest rates will increase investment spending andGDP, which will lower prices.

Q33. What gives money value under a fiatsystem?

Fiat money is the same as Treasury bonds.

Fiat money is backed by gold.

The supply of fiat money is controlled by the government.

Fiat money is also a commodity.

Q34.The term "classical economist" was first used by________ to differentiate his work from the work of earlier economists.

David Ricardo

Jean-Baptiste Say

John Maynard Keynes

John Stuart Mill

Q35. A decrease in the level of real GDP in the economy leads to

a rightward movement along the demand for money curve.

a leftward movement along the demand for money curve.

a rightward shift in the demand for money curve.

a leftward shift in the demand for money curve.

Q36. All elseequal, if workers confuse real and nominalmagnitudes, they are experiencing

money illusion.

fiscal policy.

monetary confusion.

expectations of inflation.

Q37. When the Federal Reserve increases interestrates, investment spending________ and GDP________.

increases; decreases

decreases; increases

decreases; decreases

increases; increases

Q38. Increased investment spending in the economy would be a possible result of

an open market purchase of bonds by the Fed.

an increase in interest rates.

a decrease in the money supply.

an open market sale of bonds by the Fed.

Q39. A decrease in the price level in the economy leads to

a rightward movement along the demand for money curve.

a leftward movement along the demand for money curve.

a leftward shift in the demand for money curve.

a rightward shift in the demand for money curve.

Q40. GDP for the nation of Economia is currently above potential output. If the adjustment to the longrun equilibrium occursslowly, the government of Economia is most likely to pursue a policy of

decreasing government spending to increase aggregate demand.

increasing government spending to decrease aggregate demand.

taking no action and allowing the economy to adjust naturally.

decreasing the money supply to decrease aggregate demand.

Q41. Suppose a bank has$300,000 indeposits, a reserve ratio of 5percent, and bank reserves of$45,000. This bank can make new loans in the amount of

$345,000.

$45,000.

$30,000.

$15,000.

Q42. An increase in the price level in the economy leads to

a rightward shift in the demand for money curve.

a leftward movement along the demand for money curve.

a leftward shift in the demand for money curve.

a rightward movement along the demand for money curve.

Q43. An open market purchase by the Fed

decreases the total amount of reserves in the banking system.

does not change the total amount of reserves in the banking system.

increases the total amount of reserves in the banking system.

causes the reserve requirement to fall.

Q44. Which of the following serves as the central bank for the UnitedStates?

the Federal Reserve System

the Federal Deposit Insurance Corporation

the Treasury Department

the Congress

Q45. Increases in unanticipated inflation will impact employment levels and would therefore tend to cause

unemployment to fall below the natural rate.

the natural rate of unemployment to rise.

the natural rate of unemployment to fall.

unemployment to rise above the natural rate.

Q46. Crowding out refers to

a decrease in investment caused by an increase in government spending.

a decrease in investment caused by a decrease in government spending.

an increase of investment caused by a decrease in government spending.

an increase of investment caused by an increase in government spending.

Q47. Suppose GDP________ the level of potential output. We would expect to see________ unemployment, risingwages, and rising prices.

isbelow; low

isbelow; high

exceeds; low

exceeds; high

Q48. If nominal GDP is$16 trillion and the money supply is$4 trillion, then the velocity of money is

0.25.

12.

20.

Q49. If the actual interest rate in the money market is higher than the equilibrium interestrate, there would be an excess supply of money.

True

False

Q50. Suppose the inflation rate is 3 percent this year. If nominal wages increase by 5percent, real wages will

decrease by 3 percent.

increase by 5 percent.

increase by 2 percent.

decrease by 2 percent.

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