1.

Economists use the term money to

A.

income.

B.

profits.

C.

assets used for transactions.

D.

earnings from labor.



2.

People use money as a store of value when they:

A.

hold money to transfer purchasing power into the future.

B.

use money as a measure of economic transactions.

C.

use money to buy goods and services.

D.

hold money to gain power and esteem.



3.

People use money as a unit of account when they:

A.

hold money to transfer purchasing power into the future.

B.

use money as a measure of economic transactions.

C.

use money to buy goods and services.

D.

hold money to gain power and esteem.



4.

People use money as a medium of exchange when they:

A.

hold money to transfer purchasing power into the future.

B.

use money as a measure of economic transactions.

C.

use money to buy goods and services.

D.

hold money to gain power and esteem.



5.

Money that has no value other than as money is called ______ money.

A.

fiat

B.

intrinsic

C.

commodity

D.

government



6.

A country that is on a gold standard primarily uses:

A.

commodity money.

B.

fiat money.

C.

credit money.

D.

the barter system.



7.

The quantity of money in the United States is essentially controlled by the:

A.

president of the United States.

B.

Department of the Treasury.

C.

Federal Reserve.

D.

system of commercial banks.



8.

To increase the money supply, the Federal Reserve:

A.

buys government bonds.

B.

sells government bonds.

C.

buys corporate stocks.

D.

sells corporate stocks.



9.

Currency equals:

A.

M1.

B.

the sum of funds in checking accounts.

C.

the sum of checking accounts and paper money.

D.

the sum of coins and paper money.



10.

The definition of the transactions velocity of money is:

A.

money multiplied by prices divided by transactions.

B.

transactions divided by prices multiplied by money.

C.

money divided by prices multiplied by transactions.

D.

prices multiplied by transactions divided by money.



11.

The quantity equation, viewed as an identity, is a definition of the:

A.

quantity of money.

B.

quantity of transactions.

C.

price level.

D.

transactions velocity of money.



12.

The income velocity of money:

A.

is defined in the identity MV = PY.

B.

is defined in the identity MV = PT.

C.

is the same thing as the transactions velocity of money.

D.

will be smaller than the transactions velocity of money if the quantity of transactions is greater than income.



13.

If the quantity of real money balances is kY, where k is a constant, then velocity is:

A.

k.

B.

1/k.

C.

kP.

D.

P/k.



14.

When the demand for money parameter, k, is large, the velocity of money is ______ and money is changing hands ______.

A.

large; frequently

B.

large; infrequently

C.

small; frequently

D.

small; infrequently



15.

If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then:

A.

the price level is proportional to the money supply.

B.

real GDP is proportional to the money supply.

C.

the price level is fixed.

D.

nominal GDP is fixed.



16.

The right of seigniorage is the right to:

A.

levy taxes on the public.

B.

borrow money from the public.

C.

draft citizens into the armed forces.

D.

print money.



17.

“Inflation tax” means that:

A.

as the price level rises, taxpayers are pushed into higher tax brackets.

B.

as the price level rises, the real value of money held by the public decreases.

C.

as taxes increase, the rate of inflation also increases.

D.

in a hyperinflation, the chief source of tax revenue is often the printing of money.



18.

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate must:

A.

increase by 2 percent.

B.

increase by 1 percent.

C.

remain constant.

D.

decrease by 1 percent.



19.

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______.

A.

nominal; high

B.

nominal; low

C.

real; high

D.

real; low



20.

When a person purchases a 90-day Treasury bill, he or she cannot know the:

A.

ex post real interest rate.

B.

ex ante real interest rate.

C.

nominal interest rate.

D.

expected rate of inflation.



21.

According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the:

A.

inflation rate.

B.

expected inflation rate.

C.

ex ante real interest rate.

D.

ex post real interest rate.



22.

The opportunity cost of holding money is the:

A.

nominal interest rate.

B.

real interest rate.

C.

rate of inflation.

D.

prevailing Treasury bill rate.



23.

If the Fed announces that it will raise the money supply in the future but does not change the money supply today:

A.

both the nominal interest rate and the current price level will decrease.

B.

the nominal interest rate will increase and the current price level will decrease.

C.

the nominal interest rate will decrease and the current price level will increase.

D.

both the nominal interest rate and the current price level will increase.



24.

One possible benefit of moderate inflation is:

A.

a reduction in boredom attributable to the changing prices.

B.

the elimination of menu costs.

C.

better functioning labor markets.

D.

increased certainty about the future.



25.

An example of a nominal variable is the:

A.

money supply.

B.

quantity of goods produced in a year.

C.

relative price of bread.

D.

real wage.



26.

Variables expressed in terms of money are called ______ variables.

A.

real

B.

nominal

C.

endogenous

D.

exogenous



27.

The classical dichotomy:

A.

cannot hold if money is “neutral.”

B.

is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money.

C.

fully describes the world in which we live, especially in the short run.

D.

arises because money depends on the nominal interest rate.




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