Question

38. According to the quantity theory of money, the inflation rate equals A) money supply minus real GDP. 8) the growth rate of the money supply minus the growth rate of real GDP, C) real GDP minus the money supply. D) the growth rate of real GDP minus the growth rate of the money supply of money pre rate than reacop. A) money supporowing at a fidower rate the 39. The quantity theory of money predicts that in the long run, inflation results from the A) money supply growing at a slower rate than real GDP. B) money supply growing at a faster rate than real GDP. C) velocity of money growing at a slower rate than real GDP. D) velocity of money growing at a faster rate than real GDP. 40. When the Fed purchased a large quantity of long-term bonds, as it did during 2008-2010 with its quantitative easing policies, but most banks held onto their new reserves, the money multiplier while the monetary base A) increased; increased B) increased; decreased C) decreased; increased D) decreased; decreased 41. Okun's law summarizes the relationship between A) unemployment and inflation. B) potential GDP and real GDP. C) potential GDP and the deviation from potential GDP. D) the output gap and the cyclical rate of unemployment. 42. Assume that for the second quarter of 2012, actual real GDP was $125.5 billion and potential real GDP was $142.7 billion. According to Okun's law, the cyclical unemployment rate during the second quarter of 2012 was A) 5.7%. B) 6.0% C) 6.9% D) 7.4% 43. An economic variable that moves in the opposite direction as aggregate economic activity (down in expansions, up in contractions) is called A) procyclical. B) countercyclical. C) acyclical. D) a leading variable. 44. Which of the following macroeconomic variables is procyclical and coincident with the business cycle? A) Residential investment B) Nominal interest rates C) Industrial production D) Unemployment 38 CAB CABO Bp CCD Dace

Answer 1

38) B. Quantity theory indicates that price x real GDP = money supply x velocity. When velocity is constant, rate of inflation is the difference between money supply growth rate and real GDP growth rate

39) B. As mentioned, inflation is the result of money growth in the long run

40) C. Money multiplier decreases because reserves are increased. Due to this reason only, monetary base which is the sum of currency and reserves, increases

41) D. It measures how much unemployment changes from its natural rate when GDP changes from its potential level

42) D

43) B

44) B

45) B