EC223 Lecture Notes - Lecture 6: Ecash, Business Cycle, Money Supply

13 views2 pages

lilachedgehog29

3 Oct 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Units in which value is denominated throughout the economy. Using money as a unit of account reduces transaction costs. When you have ten goods, it becomes difficult to express all the goods in terms of other goods. If you have 10 items, you will need 45 prices. Other assets also serve this function (stocks, bonds, land, houses, art, jewellery etc) Risk in investing in stock market because it is volatile. Money is the most liquid of all assets but does not pay a return, so loses value during inflation. Money is particularly poor store of value during periods of hyperinflation when inflation exceeds 50% per month. Money has an opportunity cost of holding onto it over time. Refers to a system where money is a commodity. Problem with commodity was it was hard to transport. E. g. the transportation of large amounts of gold and silver. Paper money decreed by governments as legal tender.

Related Questions

1. The market in which loans are bought and sold is called the:

		loan market.
		money market.
		secondary loan market.
		primary loan market.

2. Which of the following is omitted in a barter transaction?

		trade
		medium of exchange
		store of value
		money

3. If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

		balance of trade
		double coincidence of wants
		convenience of exchange
		division of labour

4. If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

		depend on borrowed money
		typically generate extraordinary gains
		make loans to financial capital markets
		failed to diversify risk

5. Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at the market value of $400 million, what will its total assets equal?

		$110 million
		$710 million
		$480 million
		$510 million

6. Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

		medium of exchange
		unit of account
		store of value
		unit of exchange

7.Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?

		savings
		money
		M2
		M1

8. Which of the following institutions determines the quantity of money in the economy as its most important task?

		U.S. Department of the Treasury
		Federal Open Market Committee
		Central Bank
		Federal Reserve Board of Governors

9. How are the specific interest rates for the lending and borrowing markets determined?

		U.S. Treasury Department Board policy
		by the forces of supply and demand
		through open market operations
		by altering the discount rate

10.When the central bank lowers the reserve requirement on deposits:

		the money supply increases and interest rates decrease.
		the money supply and interest rates decrease.
		the money supply and interest rates increase.
		the money supply decreases and interest rates increase.

taupeant891

Ryan savedâ $50,000 last year in his bank account so that he could buy a car this year. In thisâ case, money served the function of aâ ________.

means of deferred payment

unit of account

store of value

medium of exchange

A bank is said to have enough liquidityâ if:

it holds deposits amounting to at leastâ $100,000.

it operates for seven days a week for more than 12 hours a day.

it has enough funds to conduct its

dayminusâtominusâday

businesses and meet the regulatory requirements.

the value of its assets exceeds the value of its liabilities by at leastâ $50,000.

Consider an economy that only produces wooden chairs. Inâ 2012, the economy produced 100 wooden chairs priced atâ $10 each. The nominal GDP of the economy for the year 2012 willâ be:

â$10,000.

â$10.

â$100.

â$1,000.

Hyperinflationary episodes are always related to extremely rapid growthâ of:

real GDP.

money supply.

interest rates.

money demand.

Which of the following financial organizations have the ability to influence the supply of reserves in the Unitedâ States?

The World Bank

The Fed

Only private commercial banks

Only public sector banks

A retired worker receives a pension that is not indexed to inflation. Which of the following will happen if the rate of inflationâ rises?

The retiree will be better off.

Theâ retiree's purchasing power will fall.

The shareholders of the firm in which he worked will lose.

Theâ retiree's purchasing power will increase.

Assuming all elseâ equal, what is likely to happen to the demand curve for reserves in an economy if it goes through a period of rapidâ expansion?

There will be a n upward movement along the demand curve for reserves.

The demand curve for reserves will shift to the left.

There will be a downward movement along the demand curve for reserves.

The demand curve for reserves will shift to the right.

If the nominal interest rate in an economy isâ 9% and the expected inflation rate isâ 6%, then the expected real interest rate in the economyâ is:

â15%.

â9%.

â6%.

â3%.

If nominal GDPâ increases, what might be the cause of thisâ increase?

If nominal GDPâ increases, this could be causedâ by:

â(Select

all that

apply.â)

An increase in the price level

Deflation

An increase in real GDP

A decrease in the price level

Given the followingâ information, what is the growth rate of nominalâ GDP?

Upper Y 0Y0

real GDPâ =

â$10001000

â(in millions)

Upper Y 1Y1

real GDPâ =

â$11001100

â(in millions)

Upper Y 0Y0

price levelâ = 120120

Upper Y 1Y1

price levelâ = 130130The growth rate of nominal GDP is

nothing â%.

â (Round

your answer to the nearest

hundredth.â)

According to the quantity theory ofâ money, what must the growth rate of the money supply be given the followingâ information?

The growth rate of real GDP is

1.01.0â%.

The growth rate of nominal GDP is

3.83.8â%.

The nominal interest rate is

7.17.1â%.

The real interest rate is

4.34.3â%.

The money supplyâ (M2) is

â$10 comma 61210,612

â(in billions)According to the quantity theory ofâ money, the growth rate of the money supply must be

nothing â%.

â (Round

your answer to the nearest

tenth.â)

According to the quantity theory ofâ money, what is the inflationâ rate?

Use the information given above and calculate the inflation rate.

According to the quantity theory ofâ money, the inflation rate is

nothing â%.

â (Round

your answer to the nearest

tenth.â)

According to the quantity theory ofâ money, the inflation rate is

the ratio of money supply to nominal GDP.

the gap between the growth rate of money supply and the growth rate of real GDP.

the gap between the nominal and real interest rates.

the gap between the growth rate of money supply and the growth rate of nominal GDP.

If the inflation rate is

positivepositiveâ,

what must beâ true?

The growth rate of nominal GDP

greater than>

the growth rate of money supply.

The growth rate of real GDP

less than<

the growth rate of money supply.

The growth rate of real GDP

greater than>

the growth rate of money supply.

The growth rate of nominal GDP

less than<

the growth rate of money supply.

An open market operation isâ ____________.

the process of sellingâ Fed-issued IOUs between banks.

an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks.

where a bank borrows reserves or bonds from the Federalâ Reserve's discount window.

an exchange between private banks where the banks buy or sell bonds to each other.

The Federal Reserve conducts open market operations when it wants toâ ____________.

change the liquidity levels of banks.

influence the discount rate.

influence the federal funds rate.

change the level of reserves it holds for banks.

When the Fed

sellssells

government bonds

toto

privateâ banks, it

â¼

the electronic reserves that banks hold.

lavendersquirrel414

In periods of high inflation,

A) people want to hold as much money as possible
B) the purchasing power of money is decreasing
C) nobody wants to work and earn income
D) low nominal interest rates are likely to result
E) nobody wants to buy goods and services

Which of the following is not an effect of hyperinflation?

A) Price differences among sellers of the same product become larger.
B) People hold on to currency only for very short periods of time.
C) People tend to exchange the currency that is subject to high inflation for a more stable currency.
D) More resources are used efficiently to overcome inflation's effects on transactions costs.
E) Inflation-induced activity that is rational for individuals often has a detrimental effect on the economy as a whole.

Construction workers at times face high rates of unemployment because their work is both seasonal and subject to wide swings over the business cycle.

A) True
B) False

The view that union wage demands may be a source of inflation would be best associated with the

A) supply shock view of inflation
B) demand pull view of inflation
C) cost push view of inflation
D) demand push view of inflation
E) monetary view of inflation

Unemployment rates __________ during contractions and __________ during expansions.

A) rise, fall
B) fall, fall
C) rise, stay the same
D) stay the same, fall
E) fall, rise

The metropolitan with the lowest unemployment rate is

A) Detroit
B) Atlanta
C) San Diego
D) Honolulu
E) Portland

Uncertainty about inflation

A) shifts the attention of business managers away from exchange rate movements and toward concerns about productivity
B) reduces the difficulty of making international business decisions
C) creates uncertainty about the value of the dollar relative to foreign currencies
D) enhances money's importance as a link between the present and the future
E) makes contracts easier to negotiate

Which of the following is not consistent with full employment?

A) an unemployment rate of 5 percent or 6 percent
B) seasonal unemployment
C) structural unemployment
D) cyclical unemployment
E) frictional unemployment

Which of the following groups has historically had the highest unemployment rate?

A) professional workers
B) white teenagers
C) black teenagers
D) black adults
E) white adults

10.

An increase in a person's real wage necessarily means

A) greater purchasing power
B) a lower nominal wage
C) a lower nominal wage after payment of taxes
D) a higher nominal wage
E) a higher nominal wage after payment of taxes

11.

A decrease in the interest rate, other things constant, will

A) shift the supply of loanable funds curve to the left
B) shift the supply of loanable funds curve to the right
C) decrease the quantity of loanable funds demanded
D) decrease the quantity of loanable funds supplied
E) shift the demand for loanable funds curve to the right

12.

Inflation is defined as a sustained increase in the price level.

A) True
B) False

13.

The official unemployment rate would be higher if it included the existence of hidden unemployment or individuals who are

A) on unemployment compensation
B) not working
C) working part-time but prefer full-time work
D) voluntarily retired
E) unemployed and looking for work

byzantiumrhinoceros988

EC223 Lecture Notes - Lecture 6: Ecash, Business Cycle, Money Supply

Document Summary

Get access

Related Documents

EC223 Lecture Notes - Lecture 5: Transaction Cost, Bitcoin, Hyperinflation

EC223 Chapter Notes - Chapter 3: Ecash, Business Cycle, Precious Metal

EC223 Lecture Notes - Lecture 3: Commodity Money, Digital Currency, Barter

Related Questions