ECON252_Practice_Exam_2B_04-08-2013_-_BLUE_KEY_

Thisdemonstrates a moneyneutrality b shoeleathercosts

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Unformatted text preview: money supply, the long run effect of this is A. a rising price level. B. a falling price level. *** C. rising velocity of money. D. falling velocity of money. [Use the following information to answer questions 12–13.] Steve spends all of his money on movies and dinners. In 2011 he earned $80 per hour, the price of movies was $10, and the price of dinners was $20. 12. Which of the following involve real variables? A. Steve’s wage is 8 movies per hour. B. Steve’s wage is 4 dinners per hour. C. The price of a movie is ½ of a dinner. D. [All of the above] *** E. [None of the above] 13. After a few years of inflation, Steve earns $128 per hour, the price of movies is $17, and the price of dinners is $30. This demonstrates A. money neutrality. B. shoe leather costs. C. relative price distortions. *** D. purchasing power parity. E. the money multiplier effect. 14. (Consider the open market macro model.) The US government passes new tax incentives for domestic investment. As a result, the real interest rate will _______ and the real exchange rate will _______ . A. increase; decrease B. decrease; increase C. increase; be unaffected D. decrease; decrease E. increase; increase *** 15. The Federal Reserve’s role as “lender of last resort” involves lending to which of the following financially troubled institutions? A. Governments in developing countries during currency crises. B. US banks that cannot borrow elsewhere. *** C. US state governments when they run short on tax revenues. D. The central banks of other countries. E. [All of the above] 16. Why is the supply curve in the foreign currency exchange market vertical? A. The supply of currency is determined by NCO, not the real exchange rate. *** B. The supply of currency is set by the government. C. NX is only determined by the real interest rate. D. NCO – NX is equal to zero at every real exchange rate. 17. Purdue has the opportunity to invest $4,000,000 now in a project that they expect to yield $3,000,000 in two years and an additional $2,000,000 in three years. At an interest rate of 6%, the (net) present value of this investment is closest to _______ . A. $500,000 B. $1,000,000 C. $625,000 D. $350,000 *** E. $200,000 [Use the following table to answer questions 18–19.] The reserve ratio is 15%. Assume people ho...
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