Which Of The Following Events Could Explain A Shift Of The Money-demand Curve From Md1 To Md2?

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Unformatted text preview: Fall 2014 ECON203‐502 Texas A&M Instructor: Xi Zhao Exercise for Chapter 17 1.Open-market purchases by the Fed make the money supply a. increase, which makes the value of money increase. b. increase, which makes the value of money decrease. c. decrease, which makes the value of money decrease. d. decrease, which makes the value of money increase. 2.Which of the following is correct? a. If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. b. If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. c. If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right. d. If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right. Figure 17-1 3.Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then there is an excess a. demand for money that is represented by the distance between points A and C. b. demand for money that is represented by the distance between points A and B. c. supply of money that is represented by the distance between points A and C. d. supply of money that is represented by the distance between points A and B. 4.Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then a. the quantity of money demanded is greater than the quantity supplied; the price level will rise. b. the quantity of money demanded is greater than the quantity supplied; the price level will fall. c. the quantity of money supplied is greater than the quantity demanded; the price level will rise. d. the quantity of money supplied is greater than the quantity demanded; the price level will fall. 5.Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2, a. the demand for goods and services decreases. b. the economy's ability to produce goods and services increases. c. the equilibrium price level decreases. d. None of the above is correct. 6.Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2, a. the equilibrium value of money decreases. b. the equilibrium price level decreases. 1 Fall 2012 ECON203‐502 Texas A&M Instructor: Xi Zhao c. d. the supply of money has decreased. the demand for goods and services will decrease. 7.Refer to Figure 17-1. If the current money supply is MS1, then a. there is no excess supply or excess demand if the value of money is 2. b. the equilibrium is at point C. c. there is an excess supply of money if the value of money is 1. d. None of the above is correct. Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1.125 MS 1 0.875 0.75 0.625 0.5 0.375 MD2 0.25 MD1 0.125 5,000 8.Refer to Figure 17-2. What quantity is measured along the horizontal axis? a. the price level b. the real interest rate c. the value of money d. the quantity of money 9.Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is a. 0.5 and the equilibrium price level is 2. b. 2 and the equilibrium price level is 0.5. c. 0.5 and the equilibrium price level cannot be determined from the graph. d. 2 and the equilibrium price level cannot be determined from the graph. 10.Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD1, then a. when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. b. when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. c. there is an excess demand for money if the value of money in terms of goods and services is 0.375. d. All of the above are correct. 11.Refer to Figure 17-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2? a. an increase in the value of money b. a decrease in the price level c. an open-market purchase of bonds by the Federal Reserve d. None of the above is correct. Fall 2012 ECON203‐502 Texas A&M Instructor: Xi Zhao 12.Refer to Figure 17-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy's real GDP amounts to a. 5,000. b. 7,500. c. 10,000. d. 15,000. 13.Refer to Figure 17-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the economy's real GDP is 30,000 for the year. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service? a. 4 b. 6 c. 8 d. 12 14.Refer to Figure 17-2. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010? a. -43 percent b. -57 percent c. 57 percent d. 75 percent Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. MS1 MS2 0.5 0.33 MD 10,000 15,000 15.Refer to Figure 17-3. What quantity is measured along the vertical axis? a. the price level b. the velocity of money c. the value of money d. the quantity of money 16.Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS2, then a. when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. b. when the money market is in equilibrium, one unit of goods and services sells for 33 cents. c. there is an excess demand for money if the value of money in terms of goods and services is 0.5. d. All of the above are correct. Fall 2012 ECON203‐502 Texas A&M Instructor: Xi Zhao 17.Refer to Figure 17-3. At the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010? a. -33 percent b. 17 percent c. 50 percent d. 67 percent 18.If M = 5,000, P = 3, and Y = 10,000, what is velocity? a. 6 b. 1.5 c. 2/3 d. 1/6 19.If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is a. $0.90. b. $1.00. c. $1.11. d. $1.33. 20.Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M = a. $4,000. b. $2,250. c. $250. d. $36,000. 21.If P = 4 and Y = 450, then which of the following pairs of values are possible? a. M = 800, V = 4 b. M = 600, V =3 c. M = 400, V =2 d. M = 200, V =1 22.Suppose that in some tax year you earned a nominal interest rate of 4 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 2 percent. What was your tax rate? a. 50 percent b. 33.3 percent c. 25 percent d. None of the above are correct. 23.The country of Lessidinia has a tax system identical to that of the United States. Suppose someone in Lessidinia bought a parcel of land for 20,000 foci (the local currency) in 1960 when the price index equaled 100. In 2002, the person sold the land for 100,000 foci, and the price index equaled 600. The tax rate on nominal gains was 20 percent. Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real rate of capital gain. a. -60 percent b. -30 percent c. 30 percent d. 60 percent 24.The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera (the local currency) in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal Fall 2012 ECON203‐502 Texas A&M Instructor: Xi Zhao capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain. a. -20 percent b. 20 percent c. 42 percent d. 64 percent 25.Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain? a. $50 b. $75 c. $100 d. $200 26.Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain? a. Steve had both the higher before-tax real gain and the higher after-tax real gain. b. Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain. c. Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain. d. Stephanie had both the higher before-tax real gain and the higher after-tax real gain. 27.High and unexpected inflation has a greater cost a. for those who borrow than for those who save. b. for those who hold a little money than for those who hold a lot of money. c. for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage. d. for savers in high income tax brackets than for savers in low income tax brackets. ...
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