Question

1. Which statement best defines the velocity of money? (1 mark)

	a.	It is the rate at which the central bank puts money into the economy.
	b.	It is the long-term growth rate of the money supply.
	c.	It is the money supply divided by nominal GDP.
	d.	It is the average number of times per year a dollar is spent.

2. In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this? (1 mark)

	a.	by selling bonds on the open market, which would have raised the value of money
	b.	by purchasing bonds on the open market, which would have raised the value of money
	c.	by selling bonds on the open market, which would have lowered the value of money
	d.	by purchasing bonds on the open market, which would have lowered the value of money

3. When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function? (1 mark)

	a.	It slopes upward because at higher prices people want to hold more money.
	b.	It slopes downward because at higher prices people want to hold more money.
	c.	It slopes downward because at higher price people want to hold less money.
	d.	It slopes upward because at higher prices people want to hold less money.

14.Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How           does this change your nominal and real wages? (1 mark)

	a.	This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
	b.	This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
	c.	This increase in pay makes your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
	d.	This increase in pay makes your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

15.Assuming that V is constant, what could result from an increase in M in the quantity equation? (1 mark)

	a.	a decrease in the price level
	b.	an increase in real GDP
	c.	a decrease in nominal GDP
	d.	an increase in the price level

16.Which statement best characterizes the effects of monetary policy? (1 mark)

	a.	Monetary policy is neutral in both the short run and the long run; therefore, it does not affect real variables.
	b.	Monetary policy is neutral in the long run, but it may have effects on real variables in the short run.
	c.	Monetary policy has profound effects on real variables in both the short run and the long run.
	d.	Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.

Answer 1

1. Option D.

• Velocity of money is the average number of times per year a dollar is spent.
• Velocity of money shows how fast each unit of a currency is utilised for the purchase of various goods and services within an economy.