3. MACRO-CH-4

Money is

• the stock of assets used for transactions.

• the number of dollars in the hands of the public.

• a store of value, a unit of account, and a medium of exchange.

• All of the answers are correct.

Barter economies require

• the use of fiat money.

• the use of commodity money.

• a double coincidence of wants.

• money to serve as a store of value but not as a medium of exchange.

Fiat money

• is backed by gold.

• is established as money by an Italian automobile manufacturer.

• includes currency and gold stored in bank vaults.

• is a type of money that has no intrinsic value.

The money supply increases when

• there is an increase in government purchases.

• the central bank buys government bonds from the public.

• a private citizen buys a bond issued by General Motors.

• IBM sells stock to the public and uses the proceeds to finance the construction of a new factory.

All of the following are included in M1 EXCEPT

• currency.

• demand deposits.

• savings deposits.

• travelers’ checks.

All of the following statements about credit cards are true EXCEPT

• Credit card balances are included in M2 but not in M1.

• Credit card balances are not part of the money supply.

• Credit cards may affect the demand for money.

• Credit cards are a means of deferring payment, unlike debit cards.

Suppose that potatoes are the only product in the economy and that 1,000 pounds of potatoes are sold in a given year at $0.15 per pound. The quantity of money in the economy is $50. The transactions velocity of money is

• 5.

• 3.

• 1.5.

• 0.33.

If the nominal money supply rises by 6 percent, the price level rises by 4 percent, and output rises by 3 percent, then, according to the quantity equation, income velocity rises by

• 13 percent

• 7 percent

• 3 percent

• 1 percent

Suppose that the money supply increases by 1 percent in one year and then remains constant at this higher level thereafter. According to the quantity theory of money, the inflation rate

• is 1 percent in the first year and thereafter.

• increases by 1 percent in the first year and remains constant at the higher level thereafter.

• increases by 1 percent in the first year and returns to its former value thereafter.

• is unaffected.

According to the Fisher equation, the nominal interest rate is

• equal to the real interest rate plus the rate of inflation.

• equal to the real interest rate minus the rate of inflation.

• always greater than the real interest rate.

• constant.