ECON 252 Final Purdue Vargas Questions
with Verified Correct Detailed Solutions
latest version 2025
12. Which body of the Federal Reserve System sets the majority of
U.S. monetary policy?--- correct answer --- The Federal Open Market
Committee
13. How many Federal Reserve districts are there?--- correct answer
--- 12
14. The sum of all currency in the hands of the public plus demand
deposits and other checkable deposits plus traveler's checks is the
official definition of--- correct answer --- M1
15. If the price level increases, .--- correct answer --- the
money demand curve shifts to the right
16. Suppose that velocity is 3 and the money supply is $500 million.
According to the quantity theory of money, nominal output equals---
correct answer --- $1.5 billion.
According to the quantity theory of money M x V = P x Q. Because P x
Q is equal to output, if V = 3 and M = $500 million then the nominal
output is equal to 3 x $500 million = $1.5 billion.
17. A sustained decrease in the average level of prices and wages in
the economy is .--- correct answer --- deflation
,18. If the Fed decreases the money supply and increases interest
rates in order to reduce inflation, it is engaging in .--- correct
answer --- contractionary monetary policy
19. Sometimes there can be benefits from inflation. One of them is
that more labor might be demanded after a rise in the price level. For
this to happen, the wage would be fixed and the competitive
equilibrium level.--- correct answer --- nominal; above
20. When we say that money serves as a unit of account, we mean
that--- correct answer --- Prices of goods and services are quoted in
terms of money.
21. Fiat money --- correct answer --- Has no intrinsic value
22. The history of hyperinflations includes .--- correct answer --
- recent events. Hyper- inflations have occurred in recent times as
well as the past
23. What are the three functions that money serves in an economy?--
- correct answer --- Medium of exchange, store of value and unit of
account
24. If the FOMC decides to increase the money supply, it orders the
trading desk at the Federal Reserve Bank of New York to--- correct
answer --- buy U.S. Treasury securities.
25. Which of these facts is true about the creation of the Federal
Reserve System (the Fed)?--- correct answer --- The Fed was created
in 1913.
, 26. The Federal Reserve System is .--- correct answer --- the
central bank of the United States
27. Which of these predictions can be made using the growth rates
associated with the quantity theory of money equation?--- correct
answer --- If the money supply grows at a faster rate than real GDP,
there will be inflation
28. Which of these statements about interest rates and inflation is
true?--- correct answer --- If there is zero inflation, the nominal
interest rate is equal to the real interest rate.
29. According to the quantity theory of money, the growth rate of
money supply equals--- correct answer --- the growth rate of nominal
GDP
30. When the interest rate decreases, .--- correct answer ---
there is movement down a stationary money demand curve
31. The economist that is considered the founder of monetarism is
.--- correct answer --- Milton Friedman
32. Fluctuations in total spending in the economy may affect---
correct answer --- both employment and production in the short run.
33. The recession of 2007-2009 was caused by a;--- correct answer -
-- sharp drop in housing prices.
34. The cycle of short-term ups and downs in the economy is called--
- correct answer --- the business cycle
with Verified Correct Detailed Solutions
latest version 2025
12. Which body of the Federal Reserve System sets the majority of
U.S. monetary policy?--- correct answer --- The Federal Open Market
Committee
13. How many Federal Reserve districts are there?--- correct answer
--- 12
14. The sum of all currency in the hands of the public plus demand
deposits and other checkable deposits plus traveler's checks is the
official definition of--- correct answer --- M1
15. If the price level increases, .--- correct answer --- the
money demand curve shifts to the right
16. Suppose that velocity is 3 and the money supply is $500 million.
According to the quantity theory of money, nominal output equals---
correct answer --- $1.5 billion.
According to the quantity theory of money M x V = P x Q. Because P x
Q is equal to output, if V = 3 and M = $500 million then the nominal
output is equal to 3 x $500 million = $1.5 billion.
17. A sustained decrease in the average level of prices and wages in
the economy is .--- correct answer --- deflation
,18. If the Fed decreases the money supply and increases interest
rates in order to reduce inflation, it is engaging in .--- correct
answer --- contractionary monetary policy
19. Sometimes there can be benefits from inflation. One of them is
that more labor might be demanded after a rise in the price level. For
this to happen, the wage would be fixed and the competitive
equilibrium level.--- correct answer --- nominal; above
20. When we say that money serves as a unit of account, we mean
that--- correct answer --- Prices of goods and services are quoted in
terms of money.
21. Fiat money --- correct answer --- Has no intrinsic value
22. The history of hyperinflations includes .--- correct answer --
- recent events. Hyper- inflations have occurred in recent times as
well as the past
23. What are the three functions that money serves in an economy?--
- correct answer --- Medium of exchange, store of value and unit of
account
24. If the FOMC decides to increase the money supply, it orders the
trading desk at the Federal Reserve Bank of New York to--- correct
answer --- buy U.S. Treasury securities.
25. Which of these facts is true about the creation of the Federal
Reserve System (the Fed)?--- correct answer --- The Fed was created
in 1913.
, 26. The Federal Reserve System is .--- correct answer --- the
central bank of the United States
27. Which of these predictions can be made using the growth rates
associated with the quantity theory of money equation?--- correct
answer --- If the money supply grows at a faster rate than real GDP,
there will be inflation
28. Which of these statements about interest rates and inflation is
true?--- correct answer --- If there is zero inflation, the nominal
interest rate is equal to the real interest rate.
29. According to the quantity theory of money, the growth rate of
money supply equals--- correct answer --- the growth rate of nominal
GDP
30. When the interest rate decreases, .--- correct answer ---
there is movement down a stationary money demand curve
31. The economist that is considered the founder of monetarism is
.--- correct answer --- Milton Friedman
32. Fluctuations in total spending in the economy may affect---
correct answer --- both employment and production in the short run.
33. The recession of 2007-2009 was caused by a;--- correct answer -
-- sharp drop in housing prices.
34. The cycle of short-term ups and downs in the economy is called--
- correct answer --- the business cycle
