econ 410 Homework2

econ 410 Homework2 - Homework 2 Spring 2011 ECO 410...

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Homework 2 Spring 2011 ECO 410 Professor Li Gan Macroeconomic Theory Due 2/17/2010, in class (A) Multiple Choice Questions: (3 points per multiple choice problem) 25 questions 1. The quantity theory of money assumes that: A) income is constant. B) velocity is constant. C) prices are constant. D) the money supply is constant. 2. The recent hyper-inflation in Zimbabwe is caused by: A) corruption of the government officials. B) its central bank keep printing money. C) the Bush foreign policy. D) the current democratic election in Zimbabwe was not a fair election. 3. The weak version of purchasing power parity (PPP) states: A) Real exchange rate fluctuates from time to time. B) A big Mac costs $3.54 in the US, it must cost the 354 Yen in Japan, if the nominal exchange rate is 1 dollar = 100 Yen. C) Real exchange rate is 1. D) Although nominal exchange rate fluctuates, real exchange rate is roughly constant. 4. The hyperinflation experienced by interwar Germany illustrates how fiscal policy can be connected to monetary policy when government expenditures are financed by: A) new taxes. B) borrowing in the open market. C) printing large quantities of money. D) selling gold. 5. A higher government spending may increase the interest rate so that: A) money supply in the economy will be higher. B) the unemployment rate in the economy will be lower. C) total output will be higher . D) private investment in the economy will be lower. 6. To increase the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) buys corporate stocks. D) sells corporate stocks. Page 1
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7. The real return on holding money is: A) the real interest rate. B) minus the real interest rate. C) the inflation rate. D) minus the inflation rate. 8. A positive relationship between real interest rates and government debt is most obvious in (see Chapter 3) A) US in 200-2007. B) About 1730- 1800 in UK. C) Interwar Germany 1922-1924. D) US in 2008. 9. If the transactions velocity of money remains constant while the quantity of money doubles, the: A) price of the average transaction must double.
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econ 410 Homework2 - Homework 2 Spring 2011 ECO 410...

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