Question Details

What rate of growth of the money supply would you recommend 




1. If "the" multiplier is 6, the income multiplier with respect to the money supply is 4, and the money multiplier is 5, then to increase income by $50 billion dollars the policy authorities could 
a) increase the money supply by $2.5 billion 
b) increase government spending by $10 billion 
c) increase both government spending and the money supply by $4 billion 
d) increase government spending by $3 billion and the money supply by $8 billion 
2. Suppose the economy is at full employment with a real rate of growth of 3%. If innovations in the banking system are reducing, ceteris paribus, the need for money at 1% per year, What rate of growth of the money supply would you recommend to achieve a long-run inflation rate of 4%? 
a) 6% b) 7% c) 8% d) 9% 
3. If rapid inflation occurs in a relatively full employment economy, well-coordinated monetary and fiscal policies would involve 
a) a budget deficit and central bank sales of bonds 
b) a budget surplus and central bank sales of bonds, 
c) a budget deficit and central bank purchases of bonds 
d) a budget surplus and central bank purchases of bonds 
4. In the past 40 years, there has been a generally consistent upward trend in velocity. According to the quantity theory of money, this implies 
a) real GDP has risen less (%) than the money supply during this period 55 
b) real GDP has risen more (%) than the money supply during this period 
c) nominal GDP has risen less (%) than the money supply during this period 
d) nominal GDP has risen more (%) than the money supply during this period 
5. If you believe that velocity is constant and the AS curve is vertical, then according to the quantity theory of money, doubling the money supply should result in doubling of 
a) nominal and real output b) the price level and real output 
c) the price level with no change in real output 
d) real output with no change in nominal output



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