Macroeconomics Unit Six Study Guide

Macroeconomics study guide for Ji's class. Covers Unit 6. Use in learning mode with multiple choice questions. Access final study guide- https://knowt.com/flashcards/97616fb7-1761-4a57-82cc-0d0ee410d2d4

When the Federal Reserve conducts open-market operations to increase the money supply, it

buys government bonds from the public.

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

nominal income increased, but their real income decreased.

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

quantity theory of money.

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

a nominal interest rate of 8 percent and an inflation rate of 1 percent.

Money demand refers to

how much wealth people want to hold in liquid form, i.e. cash.

Suppose there are constant returns to scale. Now suppose that over time a country doubles its physical capital but its technology is unchanged. Which of the following would double?

neither productivity nor output

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.

Money demand and money supply determine

the nominal interest rate.

Which of the following is not a tool of monetary policy?

increasing the government budget deficit

In the long run, which of the following factor is NOT affected by money supply?

real GDP

Ashley puts money in a savings account at her bank earning 2 percent interest. One year later she takes her money out and notes that prices rose 3 percent. Ashley earned a

​real interest rate of -1 percent due to inflation.

When the Fed sells government bonds,

the money supply decreases and the federal funds rate increases.

To increase the money supply, the Fed could

decrease the required reserve ratio

If P = 2 and Y = 1000, then which of the following pairs of values are not possible?

M = $300, V = 3.

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

2.

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

2.

The supply of money increases when

the Fed makes open-market purchases.

Which of the following affects Money demand?

(Note: The money demand here means the whole money demand curve. Which of the following will shift the whole money demand curve)

the price level but not the nominal interest rate.

A decrease in the money supply might indicate that the Fed had

sold bonds in an attempt to increase the federal funds rate.

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

inflation and nominal interest rates, but does not change real interest rates.

In the long run, which of the following factor is affected by money supply?

nominal interest rates

The primary reason people hold money is

to use it as a medium of exchange.

Open-market purchases by the Fed make the money supply

increase, which makes the value of money decrease.

To decrease the money supply, the Fed could

All of the above are correct.

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

falls, because one unit of currency buys fewer ice cream cones.