Question

Multiple choice. Circle the best answer. 3 points each 1) Silver is an example of a A) commodity money, B) barter money, C) fiat money. D) representative money. 2. Which of the following functions of money would be violated if inflation were high? A) unit of account B) store of value C) certificate of gold D) medium of exchange 3. If nominal GDP is $600 billion and the money supply is SO billion, the velocity of money is A) 0.125. B) 8. C) 12. D) 20. 4) If the Central Bank raises an interest rate like the discount rate or the interbank rate, this will inflation and real GDP in the short run. A) reduce; increase B) increase; reduce C) increases increase D) reduce; reduce 5) The best definition of Mi is approximately A) paper money plus coins in circulation B) currency and coins in circulation plus reserves held with the central bank C) currency and coins in circulation, reserves with the Central Bank, plus checking account balances D) the monetary base, plus checking accounts, plus money market funds and savings accounts. 6) Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is A) $200. B) $1,700 C) $1,900 D) $20,000. 7). A velocity of 2 means money changes hands, on average, every A) 6 years. B) 6 months. C) 2 months D) 1/6 of a month. 8) If the Central Bank reduces reserve requirements from 13% to 11%, this will a. Increase the money supply and let banks loan out more money b. Decrease the money supply and let banks loan out more money c. Increase the money supply and cause banks to loan out less money d. Decrease the money supply and cause banks to loan out less money

Answer 1

(1) (A)

Silver is a commodity that can be used as money.

(2) (B)

Money erodes purchasing power and real value of assets.

(3) (C)

M x V = P x Y

V = (P x Y) / M = 600 billion / 50 = 12

(4) (D)

Higher interest rate lowers investment, decreasing aggregate demand. AD curve shifts left, decreasing price level and decreasing real GDP.

NOTE: As HOMEWORKLIB Answering Policy, 1st 4 questions are answered.