Question 1

Until the 1980s, most economists
A)included only gold and silver coins in their definition of the money supply.
B)used M1 as the measure of money.
C)used M2 as the measure of money.
D)used currency as the measure of money.

Accepted Answer

Until the 1980s, most economists used M1 as the measure of money, which includes currency, demand deposits, traveler's checks, and other checkable deposits.

Question 2

Suppose the GDP implicit price deflator was 112.7 in 2005 and 116.0 in 2006. Therefore, the inflation rate in 2006 would be
A)2.8%.
B)2.9%.
C)3.3%.
D)16%.

Accepted Answer

The inflation rate can be calculated as:

Inflation rate = (GDP deflator in year 2 - GDP deflator in year 1) / GDP deflator in year 1 * 100%

In this case, the inflation rate in 2006 would be:

(116.0 - 112.7) / 112.7 * 100% = 2.9%

Therefore, the best choice is B.

Question 3

The GDP implicit price deflator was 112.7 in 2005 and 116.0 in 2006. Therefore, the increase in the price level between the base year and 2006 was
A)2.8%.
B)2.9%.
C)3.3%.
D)16%.

Accepted Answer

The answer of The GDP implicit price deflator was 112.7...

Question 4

In 2006, the Fed stopped reporting data on which monetary aggregate?
A)M1
B)M2
C)M3
D)M4

Accepted Answer

The Fed stopped reporting data on M3 in 2006, citing the high cost of collecting the data and the belief that its usefulness in guiding monetary policy had diminished.

Question 5

The Fed's current position towards the existing monetary aggregates is
A)it is convinced that M1 is the best measure of the money supply.
B)it is convinced that M2 is the best measure of the money supply.
C)it is experimenting with new monetary aggregates.
D)it is reverting to considering currency alone as the best measure of the money supply.

Accepted Answer

The Federal Reserve has shown interest in experimenting with new monetary aggregates to better understand and manage the economy, reflecting its ongoing efforts to adapt to changing financial landscapes and the limitations of traditional measures like M1 and M2.

Question 6

Money market deposit accounts are included in
A)only M1.
B)only M2.
C)M1 and M2.
D)neither M1 nor M2.

Accepted Answer

Money market deposit accounts are included in M2, which includes M1 and other types of deposits, such as savings accounts and time deposits. M1 only includes currency, demand deposits, and traveler's checks. Therefore, the correct answer is B, only M2.

Question 7

The American Civil War lasted from the spring of 1861 to the spring of 1865. During the war the Confederate government issued substantial amounts of fiat paper currency. What do you think happened to the price level (measured in Confederate dollars) in the Confederate states during the final months of the war?

Accepted Answer

The answer of The American Civil War lasted from the...

Question 8

Economic studies have shown that countries that have high inflation rates have lower rates of economic growth than do countries with low inflation rates. Explain what underlies this relationship between inflation and economic growth.

Accepted Answer

The answer of Economic studies have shown that countries that...

Question 9

The reason why many economists switched from using M1 to M2 as the best measure of the medium of exchange is that
A)during the 1980s, new substitutes for checking accounts appeared and were included in M2.
B)during the 1980s, the country went off the gold standard and began using fiat money for the first time.
C)during the 1980s, inflation roared out of control and a better measure of the money supply seemed necessary.
D)in 1982, the federal government ordered that all income taxes must be paid using M2.

Accepted Answer

During the 1980s, new substitutes for checking accounts appeared, such as money market mutual funds and small time deposits, which were included in M2. As a result, many economists switched from using M1 to M2 as the best measure of the medium of exchange. The other options (B, C, and D) are not accurate reasons for the switch from M1 to M2.

Question 10

Most economists believe that the adoption of the euro as the common currency of most countries in the European Community will result in significant economic gains to those countries. Discuss the nature of these economic gains.

Accepted Answer

The answer of Most economists believe that the adoption of...

Question 11

The M1 and M2 aggregates
A)have moved very closely together since 1960.
B)have moved broadly together since 1960.
C)have moved significantly differently during certain periods since 1960.
D)have moved broadly together but have also moved very differently during certain periods since 1960.

Accepted Answer

While the M1 and M2 aggregates have generally moved in the same direction since 1960, there have been certain periods where their movements have diverged significantly. For example, during the early 1980s, M1 grew very rapidly while M2 did not, and in the early 2000s, M2 grew much more quickly than M1. Therefore, D is the best choice as it reflects both the general trend and the periods of divergence between M1 and M2.

Question 12

What criteria should be used in deciding the best definition of the money supply?

Accepted Answer

The answer of What criteria should be used in deciding...

Quiz 2: Money and the Payments System

Until the 1980s, most economists

Suppose the GDP implicit price deflator was 112.7 in 2005 and 116.0 in 2006. Therefore, the inflation rate in 2006 would be

The GDP implicit price deflator was 112.7 in 2005 and 116.0 in 2006. Therefore, the increase in the price level between the base year and 2006 was

In 2006, the Fed stopped reporting data on which monetary aggregate?

The Fed's current position towards the existing monetary aggregates is

Money market deposit accounts are included in

Economic studies have shown that countries that have high inflation rates have lower rates of economic growth than do countries with low inflation rates. Explain what underlies this relationship between inflation and economic growth.

The reason why many economists switched from using M1 to M2 as the best measure of the medium of exchange is that

Most economists believe that the adoption of the euro as the common currency of most countries in the European Community will result in significant economic gains to those countries. Discuss the nature of these economic gains.

The M1 and M2 aggregates

What criteria should be used in deciding the best definition of the money supply?