Question 1

The German Hyperinflation of the early 1920s was caused by

Accepted Answer

The answer of The German Hyperinflation of the early 1920s...

Question 2

The quantity equation states that

Accepted Answer

The quantity equation is M × V = P × Y. Option A is a rearrangement of the same equation. Options C and D are not accurate representations of the quantity equation.

Question 3

If the required reserve ratio is 100 percent,could the Federal Reserve still change the money supply with open market operations? Explain whether they could or could not.

Accepted Answer

The answer of If the required reserve ratio is 100...

Question 4

How will the purchase of $100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves,that households and firms do not change the amount of currency they hold,and that the required reserve ratio is 20 percent.

Accepted Answer

The answer of How will the purchase of $100 million...

Question 5

The velocity of money is defined as

Accepted Answer

The velocity of money is the average number of times each dollar is used to purchase goods and services in a given time period.

Question 6

The quantity theory of money predicts that,in the long run,inflation results from the

Accepted Answer

The quantity theory of money states that the general price level in an economy is directly proportional to the money supply in the long run, assuming all other factors remain constant. Therefore, if the money supply grows at a faster rate than real GDP, there is more money chasing the same amount of goods, leading to inflation.

Question 7

According to the quantity theory of money,if the money supply grows at 20 percent and real GDP grows at 5 percent,then the inflation rate will be

Accepted Answer

According to the quantity theory of money, inflation is directly related to the growth rate of the money supply relative to the growth rate of real GDP. The equation for the quantity theory of money is: MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is real GDP.

Assuming velocity of money remains constant, we can calculate the inflation rate using the equation:

Inflation Rate = (Percentage Change in Money Supply) - (Percentage Change in Real GDP) 
                   = 20% - 5% 
                   = 15%

Therefore, the correct answer is (A) 15 percent.

Question 8

In 1980,one Zimbabwean dollar was worth 1.47 U.S.dollars.By the end of 2008,the exchange rate was one U.S.dollar to 2 billion Zimbabwean dollars.When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe,the economy is said to experience

Accepted Answer

Hyperinflation is a condition where the price level rises rapidly, leading to a rapid erosion in the purchasing power of the currency. In Zimbabwe's case, the hyperinflation was so severe that their central bank had to issue banknotes with denominations of up to 100 trillion dollars.

Question 9

How effective is discount policy as compared to open market operations in managing the money supply? Explain how The Federal Reserve uses discount policy today.

Accepted Answer

The answer of How effective is discount policy as compared...

Question 10

The quantity equation states that the

Accepted Answer

The quantity equation, often represented as MV = PQ, states that the money supply (M) times the velocity of money (V) equals the price level (P) times real output (Q). This equation is a way to understand how these variables interact within an economy.

Question 11

There is a strong link between changes in the money supply and inflation

Accepted Answer

In the long run, there is a well-established relationship between changes in the money supply and inflation, as described by the quantity theory of money. This theory suggests that increasing the money supply faster than the growth of real output leads to inflation. In the short run, other factors can influence prices, making the relationship less clear.

Question 12

The quantity theory of money was derived from the quantity equation by asserting that

Accepted Answer

The quantity theory of money is based on the quantity equation, which states that MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is real output. The quantity theory assumes that real output (Q) and the velocity of money (V) are relatively stable in the short run, so any changes in the money supply (M) will lead to proportional changes in the price level (P). Therefore, the quantity theory implies that the velocity of money is fixed, or at least relatively stable, over time.

Question 13

According to the quantity theory of money,the inflation rate equals

Accepted Answer

The quantity theory of money is represented by the equation MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output. This equation states that the total amount of money in an economy (M) multiplied by the speed at which money is exchanged (V) equals the total value of goods and services produced (PY). Rearranging the equation, we get P=MV/Y, which shows that the inflation rate (P) is equal to the growth rate of the money supply (M) minus the growth rate of real output (Y). Therefore, option B is the correct answer.

Question 14

The quantity theory of money seeks to explain the connection between money and

Accepted Answer

The quantity theory of money explains the relationship between the supply of money and the level of prices. It assumes that if the supply of money in an economy increases, the general price level will also increase in proportion, and vice versa.

Question 15

Using the quantity equation,if the velocity of money grows at 5 percent,the money supply grows at 10 percent,and real GDP grows at 4 percent,then the inflation rate will be

Accepted Answer

The quantity equation is MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. Rearranging this equation, we get: 
P = MV/Y

If V grows at 5%, M grows at 10%, and Y grows at 4%, then we can calculate the expected inflation rate as follows:

P = (1.05*1.10)M / 1.04Y

P = 1.155M / Y

So the inflation rate is approximately 11%.

Question 16

According to the quantity theory of money,deflation will occur if the

Accepted Answer

The quantity theory of money suggests that deflation, or a decrease in the general price level, occurs when the money supply grows at a slower rate than real GDP. This is because less money chasing the same amount of goods and services leads to a decrease in prices.

Question 17

Which of the following is not a consequence of hyperinflation?

Accepted Answer

Hyperinflation does not enhance money's function as a medium of exchange. In fact, hyperinflation can lead to a breakdown in the use of money as a medium of exchange as people lose faith in the value of the currency.

Question 18

Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not.

Accepted Answer

The answer of Would the maximum loan that a bank...

Question 19

What is the principle monetary policy tool used by the Fed.Why?

Accepted Answer

The answer of What is the principle monetary policy tool...

Question 20

Hyperinflation can be caused by

Accepted Answer

The answer of Hyperinflation can be caused by
...

Quiz 16: Money, banks, and the Federal Reserve System