Practice Exam 1- Spring 2012

If the money supply increases 7 percent velocity

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Unformatted text preview: an increase in government spending. C) a decrease in the world interest rate. D) the expiration of an investment tax- credit provision. 12. According to purchasing power- parity, if the dollar price of oil is higher in New York than in London, arbitrageurs will _____ oil in New York and _____ oil in London to drive _____ the price of oil in New York. A) buy; sell; up B) buy; sell; down C) sell; buy; up D) sell; buy; down 13. In the model studiend in Ch. 3, if the interest rate is too high, then investment is too ______ and the demand for output ______ the supply. A) high; exceeds B) high; falls short of C) low; exceeds D) low; falls short of 14. If the money supply increases 7 percent, velocity decreases 2 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A) 0 B) 2 C) 4 D) 9 15. In the model studied in Ch. 3, an increase in the real interest rate could be the result of a(n): A) increase in government spending. B) decrease in government spending. C) decrease in desired investment. D) increase in taxes. 16. If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. A) 0.2 B) 2 C) 5 D) 10 17. According to the classical theory of money, inflation does...
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