1) Suppose the government decides to spend $500 million on infrastructure improvement projects. Part of the financing will be from additional borrowing of $200 million. An increase in taxes will bring an extra $200 million. If the government decides to print new money to finance the rest, how much will the seignorage be?
a)
$ 500 million
b)
$ 200 million
c)
$ 50 million
d)
$ 100 million
2) If the price level in year 1 was equal to 100 and the price level in year 2 was equal to 1,000, in year 2 the country is experiencing:
a)
inflation
b)
hyperinflation
c)
deflation
d)
stable prices
3)Suppose that nominal GDP is $5,000 and the velocity of money is equal to 5. According to the quantity theory of money, what is the amount of money in circulation?
a)
$100
b)
$500
c)
$1,000
d)
$5,000
1) Suppose the government decides to spend $500 million on infrastructure improvement projects. Part of the financing will be from additional borrowing of $200 million. An increase in taxes will bring an extra $200 million. If the government decides to print new money to finance the rest, how much will the seignorage be?
| a) | $ 500 million |
| b) | $ 200 million |
| c) | $ 50 million |
| d) |
$ 100 million 2) If the price level in year 1 was equal to 100 and the price level in year 2 was equal to 1,000, in year 2 the country is experiencing:
|
Related textbook solutions
Related questions
A) If the Fed buys U.S. government securities,
| A. |
bank reserves will decrease. |
|
| B. |
the interest rate will rise. |
|
| C. |
the discount rate will rise. |
|
| D. |
the quantity of money will eventually increase. |
B) When the Fed buys U.S. government securities from a bank, the Fed pays for the securities by
| A. |
borrowing money from the U.S. Treasury. |
|
| B. |
crediting the bank's checking account at the Fed. |
|
| C. |
decreasing the amount of money in circulation. |
|
| D. |
giving the bank gold. |
C) If a banking system has $1,000 of reserves and the required reserve ratio is 50%, the maximum volume of checkable deposit liabilities of all depository institutions combined would be
| A. |
$5,000 |
|
| B. |
$2,000 |
|
| C. |
$1,000 |
|
| D. |
$500 |
D) Continuing with the scenario from the previous question, what would happen if the Fed reduced the reserve requirement from 50% to 10%?
| A. |
Reserves would fall and deposits would fall by ten times the decrease in reserves. |
|
| B. |
Reserves would fall and maximum deposits would rise. |
|
| C. |
Reserves would stay the same, and maximum deposits would rise to $10,000. |
|
| D. |
Reserves would stay the same, and maximum deposits would fall to $100. |
