Question

QUESTION 13

1. ​ In order to determine the velocity of money, we need to know:

   	a.	​ the interest rate and nominal GDP.
   	b.	​ the money supply and the price level.
   	c.	​ the money supply and nominal GDP.
   	d.	​ nominal GDP and real GDP.

QUESTION 14

1. ​ The money supply and money demand curves are _____ and ______ respectively.

   	a.	​ Vertical; downward sloping.
   	b.	​ Upward sloping; vertical
   	c.	​ Upward sloping, downward sloping
   	d.	​ None of the above

QUESTION 15

1. In the equation of exchange, PQ represents:​

   	a.	​ the price level times the velocity of money
   	b.	​ the price index times nominal GDP.
   	c.	​ the dollar value of all final goods and services sold in a country in a given year.
   	d.	​ real GDP.

QUESTION 16

1. ​ If M increases faster than V decreases:

   	a.	​ there is an indeterminate effect on nominal GDP.
   	b.	​ nominal GDP increases.
   	c.	​ nominal GDP decreases.
   	d.	​ nominal GDP stays the same.

QUESTION 17

1. ​ When Fed policy is being used to offset a contractionary gap, which of the following variables decreases as a result?

   	a.	​ Aggregate demand.
   	b.	​ Investment.
   	c.	​ Net Exports.
   	d.	​ None of the above variables decreases as a result of Fed policy to offset a contractionary gap..

Answer 1

13. GDP= Money supply* Velocity which implies that velocity= GDP/Money supply

Thus, we need nominal GDP and money supply to determine the velocity of money. (c)

14. Since the money supply is fixed by the central bank at a level thus it is a vertically sloping line. Money demand, on the other hand, is a downward sloping curve. (a)

15. In PQ, P represents the price level while the Q represents the output produced in an economy, and thus PQ or the price times the output represents the nominal GDP or the value of goods and services in an economy. (c)

16. MV=PQ, if M increases faster than the decrease of V, it means that the product MV is increasing, and since it is equal to PQ or the nominal GDP value, thus the nominal GDP also increases. (b)

17. In order to reduce the contractionary policy, the central bank would increase the money su[pply and thus reduce the interest rate. This was done to stimulate or to increase teh investment in the economy. (d)