Quiz_3-solutions econ 410

Quiz_3-solutions econ 410 - d people can make precise...

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Quiz 3 Solutions February, 8, 2011 1. Which one of the below CANNOT be considered as one of the tools Federal Reserve uses to control money supply? a) Bank reserve requirement. b) Budget deficit. c) 3-month treasury bill . d) Fed discount rate. Answer: b) 2. The Fisher equation is DERIVED based on: (note: this is NOT asking what the Fisher equation is.) a) one cannot make systematic profits in two alternative investment options. b) it is more profitable to invest than to save in a bank. c) nominal interest rate is the sum of real interest rate and inflation.
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Unformatted text preview: d) people can make precise prediction on the rate of inflation. Answer: a). Note c) is a statement of the Fisher equation. a) is the assumption used to find out Fisher equation. 3. During the financial crisis, fed has increased money supply by 40 percent. If the velocity returns back to its pre-crisis level, real GDP increases by 10%, and fed does not adjust money supply, what would the price level likely: a) increase by 50% b) increase by 40% c) increase by 30% d) no change Answer: c)....
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This note was uploaded on 02/13/2012 for the course ECON 410 taught by Professor Hernandez-verme during the Spring '08 term at Texas A&M.

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