Question 1

In the short run, an increase in the quantity of money normally

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The answer of In the short run, an increase in...

Question 2

Which of the following would tend to decrease velocity?

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The answer of Which of the following would tend to...

Question 3

In 2005-2006, the Fed increased interest rates in an attempt to halt inflation. What was the most likely effect of raising interest rates on velocity?

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The answer of In 2005-2006, the Fed increased interest rates...

Question 4

As the price level rises, the demand for money

Accepted Answer

As the price level rises, the demand for money increases because more money is needed to carry out the same number of transactions, reflecting the higher cost of goods and services.

Question 5

_________ are more inclined to keep the government hands off the economy and favor adhering to fixed rules.

Accepted Answer

Conservatives generally prefer limited government intervention in the economy and tend to advocate for free market principles, which often involve adhering to fixed rules and regulations. Liberals, on the other hand, tend to favor government intervention in the economy to address issues such as income inequality and social justice.

Question 6

As we approached the end of the millennium, many economic crackpots advised citizens to hold large quantities of cash in anticipation of Y2K disasters. What effect would this have had on velocity if many people had been foolish enough to follow this advice?

Accepted Answer

If many people had followed the advice to hold a large amount of cash, this would have decreased the velocity of money because there would be fewer transactions taking place in the economy. People would essentially be holding onto their money and not spending it as frequently, which slows down the circulation of money.

Question 7

Many banks offer accounts featuring "Automatic Transfer from Savings" allowing customers to overdraw checking accounts and the bank will transfer enough funds to cover the check automatically. Most likely, what is the effect of this feature on velocity?

Accepted Answer

The "Automatic Transfer from Savings" feature will likely increase velocity as it allows for easier and more frequent transactions, making money move more quickly through the economy.

Question 8

In the second quarter of 1995, the following values were observed: real GDP = 4,359.3 billion; GDP deflator = 325.1; and M1 = 989.5. What is the value of velocity?

Accepted Answer

Velocity (V) can be calculated using the equation: V = (Nominal GDP / Price Level) = (M1 / GDP deflator). Plugging in the given values, we get V = (989.5 / 325.1) = 3.04. Therefore, the answer is C, which is the closest value to 3.04.

Question 9

Which one of the following will cause velocity to increase?

Accepted Answer

Increasing the efficiency of the payments system can cause the velocity of money to increase because it allows money to circulate more quickly through the economy. Enhanced payment efficiency means transactions can be completed faster, leading to more transactions within a given period, thereby increasing the velocity of money.

Question 10

The reason that velocity increases when interest rates rise is

Accepted Answer

When interest rates rise, the opportunity cost of holding onto money increases because cash is not earning as much interest as other potential investments. As a result, individuals and businesses tend to hold smaller money balances and move money more quickly, increasing the velocity of money.

Question 11

What is the effect on velocity if payments are made more often?

Accepted Answer

Velocity is defined as the frequency at which money changes hands in an economy. If payments are made more often, this increases the frequency at which money changes hands, leading to an increase in velocity.

Question 12

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

Accepted Answer

When inflation is expected to rise, people tend to spend money more quickly before it loses value, leading to an increase in the velocity of circulation.

Question 13

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP deflator = 2.2 percent. Given this data, the growth of nominal GDP was approximately

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Question 14

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP deflator = 2.2 percent. Given this data, the growth of velocity was approximately

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The answer of Economists observed the following growth rates in...

Question 15

How will an increase in the efficiency of the payments mechanism effect velocity?

Accepted Answer

An increase in the efficiency of the payments mechanism means that transactions can be completed more quickly and easily, which will increase the frequency of transactions and thus the velocity of money.

Question 16

The equation now called the ______________ starts with a 2 percent real interest rate, and then instructs the Fed to lower the interest rate in proportion to any recessionary gap and to raise it in proportion to any excess of inflation above 2 percent.

Accepted Answer

The Taylor rule is a monetary policy guideline that suggests how central banks should adjust interest rates in response to changes in the economy. It instructs the Fed to lower or raise interest rates in proportion to any deviation of actual inflation rates from the target inflation rate and any deviation of actual output levels from potential output levels. The rule was proposed by economist John Taylor and was named after him.

Question 17

The principal factor determining velocity is the

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The answer of The principal factor determining velocity is the
...

Question 18

When analyzing how money affects income, we are analyzing the way in which a

Accepted Answer

Money, in this context, is considered a stock (a quantity measured at one point in time), and income is a flow (a quantity measured over a period of time). Therefore, analyzing how money affects income is analyzing how a stock affects a flow.

Question 19

The inflation rate in January 2009 as measured by the CPI was zero. If inflation were to remain at zero for a long period, what would be the effect on velocity?

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Question 20

In 2007-2009, the Fed cut interest rates to limit the international financial crisis. What is the effect of this on velocity?

Accepted Answer

When interest rates are lowered, borrowers are more encouraged to take out loans and spend money. This can lead to an increase in the supply of money, which could theoretically increase velocity. However, during a financial crisis, people may be hesitant to spend money and instead may choose to save it or pay off debt. This decrease in spending can offset any potential increase in velocity, resulting in a decrease overall. Therefore, the correct answer is A, velocity will decrease.

Quiz 31: The Debate Over Monetary and Fiscal Policy