EXAM #3 Spring 08

EXAM #3 Spring 08 - ECON 105 SPRING 2008 Exam #3: Money and...

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ECON 105 SPRING 2008 Exam #3: True/False (2 points each) Mark A on your scantron if the statement is true; mark B if the statement is false. 1. United States dollars are backed by gold. 2. Fiat money is money used in Italy. 3. Monetary neutrality means that nominal variables, including the money supply, donÕt have real ef- fects. 4. Relative prices are real variables. 5. Stocks and bonds are not part of M1 or M2. 6. Credit cards are not part of M1 or M2. 7. Hyperinflations are typically triggered when a country tries to pay off large debts by printing money. 8. In the quantity theory of money, Velocity adjusts to counteract inflationary pressures. 9. Your money is safe in the bank because the bank keeps your entire deposit locked up in the vault. 10. An inflation tax is ÓpaidÔ by those who hold money because inflation reduces the value of their money holdings. Multiple Choice (2 points each) Identify the letter of the choice that best completes the statement or answers the question. 11. Money is money when a. it is used as a medium of exchange. b. prices are posted in its units. c. you can use it later to buy stuff. d. All of the above conditions must be met. e. Any of the above conditions must be met. 12. Which of the following is NOT a cost associated with inflation? a. The wasted time and effort associated with people trying to reduce the amount of money they hold. b. The resources used in changed prices, often referred to as menu costs. c. The loss of real purchasing power due to rising prices. d. The misallocation of resources due to relative price variability. 13. According to the Quantity Theory of Money, the ultimate cause of inflation is a. the quantity of money. c. the low rate of savings. b. the quantity of theory. d. the deficit. SCENARIO #12. Suppose the Federal Reserve purchases a U.S. Government Bond from Paris Hilton for $2,000. The Reserve Requirement is 10%. The following four questions refer to this situ- ation. 14. REFER TO SCENARIO #12 ABOVE. What is the name of the FedÕs action? a. Money multiplier.
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b. Discount rate target c. Reserve requirement d. Open Market Operations e. All of the above are correct. 15. REFER TO SCENARIO #12 ABOVE. Suppose Ms. Hilton deposits the $2000 in Bank of America and the reserve requirement is 10%. How much of the $2000 can the bank lend out to others? a. $200 d. $900 b. $20,000 e. $1800 c. $2000 16. REFER TO SCENARIO #12 ABOVE. What is the money multiplier? a. 100 d. 10000 b. 10 e. 200 c. 10% 17. REFER TO SCENARIO #12 ABOVE. What is the maximum money creation possible? a. $18,000 b. $2,000 c. $20,000 d. $10,000 e. None of the above answers is correct. 18. Inflation was expected to be 3% per year, but in fact the price level increased at 6% per year. Con- sider the impact this would have on the following groups: I. A family paying $800 per month on a 30-year mortgage at a fixed interest rate. II.
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This note was uploaded on 04/09/2008 for the course ECON 202 taught by Professor Jeniffer during the Spring '08 term at New Mexico.

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EXAM #3 Spring 08 - ECON 105 SPRING 2008 Exam #3: Money and...

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