Ch 5 HW

Question 1

The percentage of government revenue raised by printing money has usually accounted for

Answer 1

less than 3 percent of government revenue in the United States.

Question 2

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year.

Answer 2

5

Question 3

Suppose the money stock is growing 10 percent per year and real output is growing 3 percent per year. If velocity is steadily rising over time due to financial innovation, the quantity theory of money would predict the rate of inflation would be:

Answer 3

increasing.???

Question 4

If the demand for real money balances is proportional to real income, velocity will:

Answer 4

remain constant

Question 5

According to the quantity theory, a 5 percentage point increase in money growth raises the inflation rate by ___ percentage points. According to the Fisher equation, a 5 percentage point increase in the rate of inflation increases the nominal interest rate by _____ percentage points.

Answer 5

5;5

Question 6

When the demand for money parameter, k, is large, the velocity of money is ______ and money is changing hands ______

Answer 6

small; infrequently

Question 7

The general demand function for real balances depends on the level of income and the:

Answer 7

nominal interest rate

Question 8

Most hyperinflations end with _____ reforms that eliminate the need for _____.

Answer 8

fiscal; seigniorage

Question 9

The rate of inflation is the:

Answer 9

percentage change in the level of prices.

Question 10

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have ______ rates of inflation and decades of low money growth tended to have ______ rates of inflation.

Answer 10

high; low

Question 11

The demand for real money balances is generally assumed to:

Answer 11

increase as real income increases.

Question 12

If the transactions velocity of money remains constant while the quantity of money doubles, the:

Answer 12

price of the average transaction multiplied by the number of transactions must double.

Question 13

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP willl be approximately ______ percent.

Answer 13

3

Question 14

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

Answer 14

The Federal Reserve

Question 15

If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then

Answer 15

the price level is proportional to the money supply.