Economics 19900 Autumn 2007

Economics 19900 Autumn 2007 - Economics 19900 Autumn 2007...

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Economics 19900 Autumn 2007 THIRD HOUR EXAMINATION Name (Please Print): ______________________________________ [42 Points Possible] Part I. Multiple Choice. Circle letter corresponding to your answer. One point each; 20 points total. 1. Which of the following statements about money is not correct? a. Federal Reserve Notes are an example of fiat money. b. Demand deposits count (or are included) in M1 but not in M2. c. Money is a liquid asset used as a medium of exchange, a unit of account and a store of value. d. The Quantity Equation is MV=PY. e. The value of money falls when the price level rises. 2. According to the Phillips curve theory, there exists: a. a direct relationship between the money supply and the price level. b. an inverse relationship between bond prices and interest rates. c. a direct relationship between the strength of a country’s currency and its interest rates. d. an inverse relationship between unemployment and inflation. e. a direct relationship between tax rates and tax revenues. 3. If households and businesses set their spending plans in advance – and for the “long haul,” a. monetary and fiscal policy actions will only affect the economy with a considerable lag. b. macroeconomic policies are likely to cause inflation. c. “time inconsistency of policy” becomes more of a problem. d. fiscal policies are likely to produce or intensify political business cycles. e. it is even more important that monetary and fiscal authorities try to stabilize the economy. 4. In the long run, a. the inflation rate depends primarily on the ability of unions to raise wages and on the market (or monopoly) power of firms to raise prices. b. the Classical Dichotomy and monetary neutrality are unlikely to hold. c. there is a tradeoff between the inflation rate and the natural rate of unemployment. d. if the natural rate of unemployment increases, the Phillips curve shifts to the left (that is, decreases). e. the inflation rate depends primarily on the growth rate of the money supply. 5. M1 equals:
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Economics 19900 Autumn 2007 - Economics 19900 Autumn 2007...

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