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ECON 252 Midterm 2 - Fall 2010

ECON 252 Midterm 2 - Fall 2010 - 1 In the long run a change...

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1. In the long run, a change in the money growth rate affects the inflation rate but not the _______ interest rate. The _________ 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 __________. 3. In which of the following situations is a person hurt by inflation? I. A lender, when inflation is higher than expected. II. A lender, when inflation is lower than expected. III. A borrower, when inflation is lower than expected. IV. A borrower, when inflation is higher than expected. 4. Suppose an economy produces only two goods, guns and butter. In 2009, money supply is $1,000. Gun 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 _________. 5. 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 interest? a) 1.2 percent b) 2.8 percent c) 4.8 percent d) 3.2 percent 6. 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. Bank of Johnson City Assets Liabilities Reserves $2000 Deposits $20000 Loans $18000
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