ECON 200 UOFA EXAM 2 -
COMPLETE QUESTIONS AND DETAILED SOLUTIONS
LATEST UPDATE THIS YEAR JUST RELEASED
Question 1: What determines the magnitude of the changes in price
level when central bank takes monetary policy measures that leads
to a change in the aggregate demand? a. Changes in the money
supply b. Slope of the aggregate supply curve c. Rate of change of
interest rate d. Total money supply in the economy
Answer:
b. Slope of the aggregate supply curve
Question 2: The correct chain of causation illustrating the effects of
monetary policy is a. money, interest rates, C + I + G + (X - IM), I. b.
money, interest rates, I, C + I + G + (X - IM). c. C + I + G + (X - IM), I,
interest rates, money. d. I, C + I + G + (X - IM), money, interest rates.
Answer:
b. money, interest rates, I, C + I + G + (X - IM).
Question 3: Which of the following is the formula for velocity? a.
Velocity = nominal GDP/real GDP b. Velocity = real GDP/M c.
Velocity = (P Y)/(M V) d. Velocity = nominal GDP/M
Answer:
d. Velocity = nominal GDP/M
Question 4: The velocity of circulation is the a. speed at which the
multiplier takes effect. b. speed at which money circulates. c. speed
at which tax cuts get spent. d. rate at which money creation takes
place.
,Answer:
b. speed at which money circulates.
Question 5: . If you divide the amount of nominal GDP by the stock
of money, you have computed the a. multiplier. b. price level. c.
velocity of circulation. d. inflation rate.
Answer:
c. velocity of circulation.
Question 6: A look at the historical data indicates that velocity for
M1 a. has been more variable than the velocity for M2, but both
have been fairly constant for the past 65 years. b. and M2 have both
trended downward, but velocity for M2 has been more erratic than
velocity for M1. c. has been fairly constant for the past 65 years, but
velocity for M2 has trended downward. d. has trended upward in
the past 65 years, but velocity for M2 has been more constant.
Answer:
c. has trended upward in the past 65 years, but velocity for M2 has
trended downward.
Question 7: If credit cards were suddenly ruled illegal and were no
longer used, the most likely effect would be a decrease in the a.
demand for money. b. level of cash balances. c. average checking
account balance. d. velocity of circulation.
Answer:
d. velocity of circulation.
Question 8: The efficiency of the payments' mechanism affects a.
the speed with which money can be exchanged for other assets. b.
how quickly individual loan applications will be approved. c. how
, slowly individuals deplete their cash balances. d. the speed with
which financial institutions can process checks and other funds.
Answer:
d. the speed with which financial institutions can process checks and
other funds.
Question 9: In 1998, the Fed cut interest rates to prevent the spread
of the international financial crisis. What is the effect of this on
velocity? a. It will decrease. b. It will increase. c. It will remain
constant. d. Velocity is unrelated to interest rates.
Answer:
a. It will decrease.
Question 10: As we approached the end of the millennium, many
economic crackpots advised citizens to hold large quantities of
cash in anticipation of Y2K disasters. What effect would this have
had on velocity if many people had been foolish enough to follow
this advice? a. It would have decreased. b. It would have increased.
c. It would have remained constant. d. Velocity is unrelated to cash
balances.
Answer:
a. It would have decreased.
Question 11: Many banks offer accounts featuring "Automatic
Transfer from Savings" allowing customers to overdraw checking
accounts and the bank will transfer enough funds to cover the
check automatically. Most likely, what is the effect of this feature on
velocity? a. It will decrease. b. It will increase. c. It will remain
constant. d. Velocity is unrelated to saving accounts.
Answer:
COMPLETE QUESTIONS AND DETAILED SOLUTIONS
LATEST UPDATE THIS YEAR JUST RELEASED
Question 1: What determines the magnitude of the changes in price
level when central bank takes monetary policy measures that leads
to a change in the aggregate demand? a. Changes in the money
supply b. Slope of the aggregate supply curve c. Rate of change of
interest rate d. Total money supply in the economy
Answer:
b. Slope of the aggregate supply curve
Question 2: The correct chain of causation illustrating the effects of
monetary policy is a. money, interest rates, C + I + G + (X - IM), I. b.
money, interest rates, I, C + I + G + (X - IM). c. C + I + G + (X - IM), I,
interest rates, money. d. I, C + I + G + (X - IM), money, interest rates.
Answer:
b. money, interest rates, I, C + I + G + (X - IM).
Question 3: Which of the following is the formula for velocity? a.
Velocity = nominal GDP/real GDP b. Velocity = real GDP/M c.
Velocity = (P Y)/(M V) d. Velocity = nominal GDP/M
Answer:
d. Velocity = nominal GDP/M
Question 4: The velocity of circulation is the a. speed at which the
multiplier takes effect. b. speed at which money circulates. c. speed
at which tax cuts get spent. d. rate at which money creation takes
place.
,Answer:
b. speed at which money circulates.
Question 5: . If you divide the amount of nominal GDP by the stock
of money, you have computed the a. multiplier. b. price level. c.
velocity of circulation. d. inflation rate.
Answer:
c. velocity of circulation.
Question 6: A look at the historical data indicates that velocity for
M1 a. has been more variable than the velocity for M2, but both
have been fairly constant for the past 65 years. b. and M2 have both
trended downward, but velocity for M2 has been more erratic than
velocity for M1. c. has been fairly constant for the past 65 years, but
velocity for M2 has trended downward. d. has trended upward in
the past 65 years, but velocity for M2 has been more constant.
Answer:
c. has trended upward in the past 65 years, but velocity for M2 has
trended downward.
Question 7: If credit cards were suddenly ruled illegal and were no
longer used, the most likely effect would be a decrease in the a.
demand for money. b. level of cash balances. c. average checking
account balance. d. velocity of circulation.
Answer:
d. velocity of circulation.
Question 8: The efficiency of the payments' mechanism affects a.
the speed with which money can be exchanged for other assets. b.
how quickly individual loan applications will be approved. c. how
, slowly individuals deplete their cash balances. d. the speed with
which financial institutions can process checks and other funds.
Answer:
d. the speed with which financial institutions can process checks and
other funds.
Question 9: In 1998, the Fed cut interest rates to prevent the spread
of the international financial crisis. What is the effect of this on
velocity? a. It will decrease. b. It will increase. c. It will remain
constant. d. Velocity is unrelated to interest rates.
Answer:
a. It will decrease.
Question 10: As we approached the end of the millennium, many
economic crackpots advised citizens to hold large quantities of
cash in anticipation of Y2K disasters. What effect would this have
had on velocity if many people had been foolish enough to follow
this advice? a. It would have decreased. b. It would have increased.
c. It would have remained constant. d. Velocity is unrelated to cash
balances.
Answer:
a. It would have decreased.
Question 11: Many banks offer accounts featuring "Automatic
Transfer from Savings" allowing customers to overdraw checking
accounts and the bank will transfer enough funds to cover the
check automatically. Most likely, what is the effect of this feature on
velocity? a. It will decrease. b. It will increase. c. It will remain
constant. d. Velocity is unrelated to saving accounts.
Answer:
