practicequestions3spring2005 - Economics 302 Spring 2005...

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Economics 302 Spring 2005 Practice Questions 3 on Chapter 4 Multiple Choice: 1. The money supply decreases when a. The Federal Reserve purchases T-bills in the open market. b. The FOMC sells T-bills in the open market. c. An individual writes a check to make a purchase. d. An individual purchases newly issued stock from a corporation. 2. Which of the following statements is true? a. The U.S. one dollar bill is a good example of commodity money since it is backed by the gold stored at the New York District Federal Reserve Bank. b. M3 provides a good measure of the money supply since it includes only those assets that are used to make transactions. c. Fiat money has no intrinsic value. d. The U.S. Treasury can legally print money and therefore controls the money supply. 3. A good approximation of the real interest rate is a. The nominal interest rate plus the expected inflation rate. b. The expected inflation rate minus the nominal interest rate. c. The nominal interest rate minus the expected inflation rate. d. The sum of one plus the nominal interest rate multiplied by the expected inflation rate. 4. The Fisher Effect tells us that an increase in the nominal interest rate is due to a. Increases in the real interest rate. b. Decreases in the real interest rate. c. Decreases in the expected inflation rate. d. Increases in the expected inflation rate. 5. Unanticipated inflation hurts a. People on fixed incomes. b. Borrowers. c. Lenders. d. All of the above. e. (a) and (b) f. (a) and (c) 6. Compute the transactions velocity of money from the following information. In the economy under consideration there is only one good, peanuts. In a given year 2000 pounds of peanuts are sold at $1.00 per pound and the quantity of money in this economy is $200. The transactions velocity of money is
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a. 1 b. 10 c. 100 d. .1 e. 1000 7. Suppose the money supply increases by 5% while the income velocity of money increases by 8% during a given year. According to the quantity equation, nominal income increased by a. 5% b. 8% c. 9% d. 13% 8. Use the same information in question (7). In addition you now know that real output increased by 4% during the given year. The inflation rate for this year is approximately equal to a. 9% b. 8% c. 5% d. 4% 9. Suppose you are using a Classical Model and are told that the money supply increased by 2% in one year and then was held constant at this new, higher level
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This note was uploaded on 08/08/2008 for the course ECON 302 taught by Professor Gold during the Spring '07 term at University of Wisconsin.

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practicequestions3spring2005 - Economics 302 Spring 2005...

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