In the long run, a change in the money growth rate affects the inflation rate but not the _______ interest
_________ interest rate adjusts one-for-one with change in the inflation rate.
a) nominal, nominal
b) nominal, real
c) real, nominal
d) real, real
2. In 2009, the Fed increases Money supply by 5%. If technological progress causes Y to increase, and velocity
remains the same then the price level will rise by
a) 5 %
b) less than 5%
c) greater than 5%
None the above
In which of the following situations is a person hurt by inflation?
A lender, when inflation is higher than expected.
A lender, when inflation is lower than expected.
A borrower, when inflation is lower than expected.
A borrower, when inflation is higher than expected.
a) I and III
b) I and IV
c) II and III
d) II and IV
Suppose an economy produces only two goods, guns and butter.
In 2009, money supply is $1,000.
production is 800 units, the price of guns is $5 per unit, butter produced is 400 units, and price of butter is
$4 per unit.
Then, the velocity of money in this economy is _________.
d) none of the above.
John put money into a savings account and earned a nominal interest rate of 6 percent.
If the rate of
inflation is 2 percent, and John’s marginal tax rate is 20 percent, what is John’s after-tax real rate of
a) 1.2 percent
b) 2.8 percent
c) 4.8 percent
d) 3.2 percent
Suppose banks decide to hold more excess reserves relative to deposits. Other things same, this action will
cause the supply of money and credit to _________.
The FED could avoid this outcome by conducting
open market _______ of government bonds.
b) rise; purchases
Bank of Johnson City
Refer to the balance sheet above.
If the required reserve ratio for deposits is 8 percent, the Bank of
Johnson City has ________ dollars in excess reserves.
None of the above are correct.
During the banking day, depositors at the Bank of Johnson City withdraw $500 in cash from the bank.
the required reserve ratio is still 8 percent, excess reserves in this bank at the end of the day will equal___