Homework 4

# Homework 4 - ECONOMICS 002 Name Fall Semester 2009 Homework...

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ECONOMICS 002 Name: ___________________________________________ Fall Semester 2009 Homework Assignment 4 TA and Time: ___________________________________________ Due October 29, 2009, in class [Note: this is later than the tentative date in the course syllabus by one lecture.] Please write your name and the meeting time of your recitation section on your homework. As room is provided for your answers, you can use these sheets if you would like. 1. [20 points] State whether each of the following statements is true or false. Very briefly explain your answer. a. When commodity money is the only type of money, a decrease in the price of the commodity serving as money is inflation. b. The same money is always used as both a unit of account and a medium of exchange at any one time in any one country. c. The smaller the reserve ratio at banks, the larger the money multiplier. d. The Federal Reserve (or any central bank) can reduce reserves by buying government bonds. 2. [30 points] consider the following table: Year Quantity of Money (billions of \$s) Velocity Real GDP (billions of \$s) GDP Deflator 2004 \$1,375 7.113 \$10,703 2005 \$1,373 7.138 \$11,049 2006 \$1,366 7.200 \$11,415 a. Fill in the missing data, using the quantity equation of money.

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b. Briefly explain why might velocity change in this way.
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