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| 1 | |
History proves that: |
| | A) | Countries with low rates of money growth have high rates of inflation. |
| | B) | Money growth and inflation are not related. |
| | C) | Countries with high rates of money growth have high rates of inflation. |
| | D) | Money growth rates equal inflation rates. |
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| 2 | |
When the currency loses value, causing people to spend it more quickly, this: |
| | A) | Has the same effect on inflation as an increase in money growth. |
| | B) | Has the same effect on inflation as a decrease in money growth. |
| | C) | Causes higher inflation but not as much as an increase in money growth would. |
| | D) | Causes even higher inflation than an increase in money growth would. |
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| 3 | |
The velocity of money increases if: |
| | A) | Each unit of money is used more frequently. |
| | B) | Each unit of money is used less frequently. |
| | C) | More purchases are made. |
| | D) | None of the above answers is correct; the velocity of money is constant. |
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| 4 | |
According to the equation of exchange, if real output and the money supply stay the same and the price level increases: |
| | A) | The velocity of money has to increase. |
| | B) | The velocity of money has to decrease. |
| | C) | The real GDP had to rise. |
| | D) | Nominal GDP remains constant. |
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| 5 | |
Which of the following expresses the equation of exchange? |
| | A) | MY = PV |
| | B) | MV = Y |
| | C) | MV = PY |
| | D) | MP = VY |
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| 6 | |
Using the equation of exchange, if inflation is 1%, the velocity of money grows by 1.0% and the growth rate of money is 3.0%; what is real growth? |
| | A) | +3.0% |
| | B) | 1% |
| | C) | 4.0% |
| | D) | -1.0% |
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| 7 | |
If the Fed were to tie the rate of money growth to the Consumer Price Index (CPI), the rate of money growth might be excessive because: |
| | A) | The CPI does not measure inflation at the household level. |
| | B) | Most economists maintain the CPI overstates inflation by 2 to 4 percent annually. |
| | C) | Most economists maintain the CPI overstates inflation by 1 percent annually. |
| | D) | Studies suggest that money growth is not related to the CPI. |
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| 8 | |
Based on the analysis of the equation of exchange, Irving Fisher, derived the quantity theory of money which states that: |
| | A) | Velocity changes always offset changes in the supply of money. |
| | B) | Changes in the aggregate price level are caused solely by changes in velocity. |
| | C) | Changes in the aggregate price level are caused solely by changes in the quantity of money. |
| | D) | None of the answers given are correct. |
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| 9 | |
Nobel-laureate economist Milton Friedman suggested that policymakers strive to ensure that the monetary aggregates: |
| | A) | Grow at a rate equal to the rate of inflation. |
| | B) | Grow at a rate equal to the rate of real growth plus the desired level of inflation. |
| | C) | Grow at a rate equal to the rate of real growth less the desired level of inflation. |
| | D) | Remain constant in terms of dollar amounts. |
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| 10 | |
Which of the following would reflect the transactions demand for money? |
| | A) | Keeping funds in your checking account to pay your rent. |
| | B) | Keeping funds in your savings account because the interest rate looks relatively attractive. |
| | C) | Selling common stocks you own and increasing the money in your savings account because you think stock prices will fall soon. |
| | D) | Buying a U.S. Treasury security using funds from your checking account. |
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| 11 | |
The higher the nominal interest rate: |
| | A) | The less money individuals will hold for any given level of transactions and the higher the velocity of money. |
| | B) | The more money individuals will hold for any given level of transactions and the higher the velocity of money. |
| | C) | The more money individuals will hold for any given level of transactions and the lower the velocity of money. |
| | D) | The less money individuals will hold for any given level of transactions and the lower the velocity of money. |
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| 12 | |
As a person's wealth increases we would expect the demand for money to: |
| | A) | Decrease. |
| | B) | Increase dollar for dollar with wealth. |
| | C) | Increase but at a rate less than dollar for dollar. |
| | D) | Not change; money demand does not vary with wealth, only with income. |
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| 13 | |
If an investor thinks interest rates are likely to rise, she would: |
| | A) | Sell her bonds and hold more money. |
| | B) | Buy more bonds now and hold less money. |
| | C) | Not alter her bond portfolio until interest rates actually rise. |
| | D) | Not change her money holdings at all. |
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| 14 | |
The Lucas critique focuses specifically on: |
| | A) | The relationship between Fed policy and the money supply. |
| | B) | The role that economic policymaking has on people's economic behavior. |
| | C) | The inability to measure economic performance accurately. |
| | D) | The moving away from fixed exchange rates to flexible exchange rates. |
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| 15 | |
If a central bank sets an explicit inflation target, the central bank must: |
| | A) | Put more emphasis on the interest rate target and less on a money target. |
| | B) | Shift its focus entirely to a nominal interest rate target. |
| | C) | Give up control of targeting the monetary base. |
| | D) | Be willing to live with more volatility in the interest rate. |
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