In: Economics
1. Suppose the velocity of money is constant. Real GDP grows by 6 percent per year, the money stock grows by 10 percent per year and the real interest rate is 5 percent. According the information above the nominal interest rate is ____________ percent.
a. 1
b. 9
c. 16
d. 4
e. 11
2. The natural rate of unemployment may be reduced by
a. |
increase in minimum wages. |
|
b. |
efficiency wages. |
|
c. |
generous unemployment insurance. |
|
d. |
public retraining programs. |
3.
Assume that the currency-deposit ratio is 0.4 and the required reserve ratio is 0.3. The Federal Reserve carries out open-market operations, selling $4 million worth of bonds to banks. This action will decrease the money supply by ______________ million.
a. |
$3.5 |
|
b. |
$8 |
|
c. |
$2.8 |
|
d. |
$4 |
|
e. |
$12 |
4.
Suppose V is constant, M is growing 9% per year, Y is growing 4% per year, where V is velocity, M is the quantity of money, and Y is real output. Suppose the growth rate of Y rises to 6% per year. To keep inflation constant the Fed must __________ the money growth rate by __________ percentage point per year.
a. |
increase; 1 |
|
b. |
reduce; 2 |
|
c. |
increase; 2 |
|
d. |
reduce; 1 |
1) Use quantity equation of exchange
g% + p% = m% + v%
p% = m% + v% - g%
= 10% + 0% - 6%
= 4%
Now real interest rate = nominal interest rate - inflation
5 + 4 = 9% = nominal interest rate
select B
2) Select D
3) Select B
4) Select C.