Question 1

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 2

In 2008,the inflation rate in Zimbabwe rose to almost 15 billion percent,and eventually foreigners and local residents refused to accept the Zimbabwean dollar for goods and services.In early 2009,the new Zimbabwean government decided to

Accepted Answer

The best choice is B which is to abandon its own currency and make the U.S. dollar the country's official currency. This decision was made to combat hyperinflation and stabilize the economy by introducing a more stable currency. Choice A is not viable as a barter economy is not practical in a modern society. Choice C would only worsen the situation by limiting access to more stable foreign currencies. Choice D is also not feasible as it would require a significant overhaul of the country's monetary system.

Question 3

Which of the following is not a consequence of hyperinflation?

Accepted Answer

Hyperinflation causes money to lose value rapidly, making it less desirable as a medium of exchange. Instead, people may resort to bartering or using alternative currencies. Thus, money's function as a medium of exchange is not enhanced during hyperinflation.

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

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

The quantity theory of money states that the inflation rate is equal to the growth rate of the money supply minus the growth rate of real GDP. Therefore, the inflation rate in this scenario would be 20% - 5% = 15%.

Question 6

In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.Any of these new funds that are loaned out by banks would be classified as ________ of the banks.

Accepted Answer

Excess reserves are funds that banks hold above and beyond the required reserves set by the Federal Reserve. In this case, the new funds made available by the Federal Reserve would be considered excess reserves if they are loaned out by banks. Required reserves are the minimum amount of funds that banks are required to hold by the Federal Reserve, while deposits and liabilities refer to the funds that customers hold in their bank accounts or the debts that the bank owes to its customers, respectively.

Question 7

Hyperinflations occur because governments want to spend more than they raise in taxes,and they pay for the extra purchases by printing money.

Accepted Answer

Hyperinflations are often caused by excessive printing of money by governments in order to finance spending that exceeds their ability to generate revenue through taxation. This leads to a surplus of money in circulation, which causes prices to rise rapidly and the value of the currency to plummet.

Question 8

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 9

Hyperinflation can be caused by

Accepted Answer

The answer of Hyperinflation can be caused by
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Question 10

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 11

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

Accepted Answer

The quantity theory of money states that inflation is caused by an increase in the money supply. Therefore, if the money supply is growing at a faster rate than real GDP, there will be more money chasing the same amount of goods and services, leading to inflation.

Question 12

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

Accepted Answer

The quantity theory of money states that the inflation rate is directly proportional to the growth rate of the money supply minus the growth rate of real output in the economy. This can be expressed as Inflation Rate = Growth rate of Money Supply - Growth Rate of Real Output, which is option B.

Question 13

For the purchasing power of money to increase,the price level has to fall.

Accepted Answer

When prices decrease, goods and services become cheaper and can be purchased with fewer units of currency, which means the purchasing power of money has increased.

Question 14

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

The rapid increases in price levels described here, with the exchange rate going from 1 Zimbabwean dollar to 1.47 US dollars to 1 US dollar to 2 billion Zimbabwean dollars, is a clear example of hyperinflation. Hyperinflation is defined as a situation where the price level increases rapidly and out of control, with double or triple-digit inflation rates occurring over a short period of time. This leads to a rapid loss of the value of the currency, which is clearly what happened in Zimbabwe.

Question 15

In an attempt to bring lenders and borrowers together following the financial crisis of 2008,the Federal Reserve made a large amount of new funds available to financial markets.The Fed expected this to increase in the money supply and the total amount of lending because of the multiplier effect,in which a given amount of new reserves results in a multiple increase in

Accepted Answer

The multiplier effect refers to the fact that a given amount of new reserves can result in a multiple increase in bank deposits, as banks are able to lend out a portion of the new reserves they receive. This increase in bank deposits leads to an increase in the money supply and the total amount of lending.

Question 16

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts a price deflation.

Accepted Answer

According to the quantity theory of money, if the rate of growth in real GDP exceeds the rate of growth in the money supply, then there will be a decrease in the price level or deflation. This is because there will be a decrease in the demand for goods and services relative to their supply, causing prices to fall.

Question 17

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 18

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 money supply, V is velocity of money, P is price level, and Y is real GDP. Solving for P, we get P=MV/Y. If velocity of money grows by 5%, then V=1.05. If money supply grows by 10%, then M=1.1. And if real GDP grows by 4%, then Y=1.04. Plugging these values into the equation, we get P=1.1*1.05/1.04=1.116. Therefore, the inflation rate is (1.116-1)*100=11.6%, which is closest to option C, 11%.

Question 19

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: MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output. The theory assumes that real output (Y) and velocity (V) are relatively constant in the short run, so changes in the money supply (M) will be reflected in changes in the price level (P). Therefore, the velocity of money (V) is not fixed, but it is assumed to be relatively constant in the short run for the purpose of the theory.

Question 20

The German Hyperinflation of the early 1920s was caused by

Accepted Answer

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

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