Question Details

The rate of growth of the money supply is 



Suppose income is $800 billion, the price index is 120 (base year 1992), inflation is 10 percent, the long-run real rate of growth is 2 percent, and the current money supply is $200 billion. 
1. Real (1992 dollars) income is 
a) $700b or less b) more than $700b but not more than $800b 
c) more than $800b but not more than $900b d) more than $900b 
2. Velocity is 
a) 3 or less b) more than 3 but not more than 4 
c) more than 4 but not more than 5 d) more than 5 
3. The rate of growth of the money supply is 
a) 8% or less b) more than 8% but not more than 10% 
c) more than 10% but not more than 12% d) more than 12% 
4. Suppose "the" multiplier is 3, the money multiplier is 6 and the income multiplier with respect to the money supply is 4. The government increases spending by $12 billion, but because the economy is operating at full capacity it wants to use monetary policy to offset the impact this will have on income. The central bank should 
a) buy $1.5b bonds b) buy $9b bonds c) sell $1.5b bonds d) sell $9b bonds 
5. Suppose velocity is increasing by 1% per year, the long-run real rate of growth is 2%, and the rate of money supply growth is 10%. 
Long-run inflation is 
a) 7% b) 8% c) 9% d) 10% 
6. Suppose "the" multiplier is 3, the money multiplier is 4 and the income multiplier with respect to the money supply is 5. If the government increases its spending by $10 billion at the same time that the central bank sells $2 billion of bonds on the open market (beyond the bond sales involved in financing the government spending), then income 
a) falls by $10b or more b) falls by less than $10b 
c) increases by $10b or less d) increases by more than $10b



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