Macro_Chapter_14_study_guide_questions_13e

Macro_Chapter_14_study_guide_questions_13e - Macro Chapter...

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Macro Chapter 14 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. A decrease in the nominal (or money) interest rate would a. encourage people to hold smaller money balances. b. encourage people to hold larger money balances. c. force the Fed to increase the money supply. d. cause the real interest rate to rise. ____ 2. According to monetarists, which of the following would most likely eliminate inflation? a. a steady increase in federal expenditures at an annual rate of approximately 3 percent b. indexing of wages, taxes, and pensions to the rate of inflation c. a steady expansion in the money supply at a rate no greater than the long-run growth of real output d. a steady 3 percent increase in the size of the budget deficit ____ 3. Given the strict quantity theory of money, if the quantity of money doubled, prices would a. fall by half. b. double. c. remain constant. d. increase somewhat but less than double. ____ 4. If the growth rate of real GDP is 3 percent, velocity is constant, and the money supply grows at 9 percent, the rate of inflation will be approximately a. 3 percent. b. 6 percent. c. 9 percent. d. 12 percent. ____ 5. When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because a. real interest rates will fall, stimulating business investment and consumer purchases. b. the dollar will appreciate on the foreign exchange market, leading to a decrease in net exports. c. lower interest rates will tend to decrease asset prices (such as the prices of homes), which decreases wealth and thereby decreases current consumption. d. all of the above are true. ____ 6. The most likely short-run impact of an unanticipated decrease in the money supply is a(n) a. decrease in the real interest rate, which in turn reduces investment and real GDP. b. increase in the real interest rate, which in turn reduces investment and real GDP. c.
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Macro_Chapter_14_study_guide_questions_13e - Macro Chapter...

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