Question 1

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 2

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 3

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 4

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 5

The German Hyperinflation of the early 1920s was caused by

Accepted Answer

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

Question 6

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

Accepted Answer

According to the quantity theory of money, in the long run, changes in the money supply will lead to proportional changes in the price level. If the money supply grows at a faster rate than real GDP, then there will be more money chasing the same amount of goods and services, leading to inflation. Therefore, D is the correct answer.

Question 7

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 8

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

Accepted Answer

According to the quantity theory of money, the inflation rate is determined by the growth rate of the money supply minus the growth rate of real output. This is because an increase in the money supply without a corresponding increase in real output leads to an increase in aggregate demand, which leads to higher prices and thus inflation.

Question 9

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 10

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

Accepted Answer

The quantity theory of money states that the price level is proportional to the money supply and the velocity of money. Thus, the assumption is that the velocity of money is relatively stable over time.

Question 11

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

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Question 12

The quantity equation states that

Accepted Answer

The quantity equation is defined as M × V = P × Y, not M/V = P/Y or any of the other options presented.

Question 13

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. 
If V grows at 5%, and Y grows at 4%, then the overall increase in output is 9% (4% + 5%). 
However, if the money supply grows at 10%, then the equation becomes: 
(1.05M) = P(1.09Y)
(1.05M)/(1.09Y) = P
Therefore, the inflation rate is (P - 1)*100, which is approximately 11%. 
So the correct answer is C) 11 percent.

Question 14

The velocity of money is defined as

Accepted Answer

The velocity of money is defined as the average number of times each dollar is used to purchase goods and services. It measures how quickly money is changing hands in the economy.

Question 15

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 16

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 situation where prices increase rapidly and uncontrollably, leading to a rapid decline in the value of the currency. This is precisely what happened in Zimbabwe, where inflation reached an unprecedented level of over 79.6 billion percent in November 2008. As a result, the Zimbabwean dollar became almost worthless, and the country had to abandon its currency in favor of using foreign currencies such as the US dollar and South African rand.

Question 17

Which of the following is not a consequence of hyperinflation?

Accepted Answer

Hyperinflation leads to a decrease in the value of money, making it less desirable as a store of value or unit of account. However, it does not enhance its function as a medium of exchange.

Question 18

Hyperinflation can be caused by

Accepted Answer

The answer of Hyperinflation can be caused by
...

Question 19

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 quantity of money in an economy and the level of prices. It suggests that if the supply of money in an economy increases, it will lead to an increase in prices, and vice versa. The theory is often expressed in the equation of exchange: M x V = P x Y, where M is the supply of money, V is the velocity of circulation of money, P is the price level, and Y is the level of real output.

Question 20

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 rate = growth rate of money supply - growth rate of real GDP. 
Therefore, inflation rate = 20% - 5% = 15%. Thus, the correct choice is A.

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