Quiz

ECO 20

1

M4A3

1. Classify each of the following as using money as a store of value, a medium of exchange, or unit of account. Explain your answers. (6)

a. Vlad saves up money to buy a new television.

b. Vlad compares the prices of different televisions.

c. Vlad buys a television.

2. Based on the graph below, identify the equilibrium interest rate and the quantity of money balances held. (4)

3. If equilibrium real GDP is less than full employment real GDP, what should the Fed do (12)

(a) About the discount rate?

(b) The reserve requirement?

(c) With bonds?

(d) We can terms these actions as an increase/decrease in the money supply.

(e) We would expect inflation to _________.

(f) We would expect unemployment to _____________.

4. Explain how and why an expansionary monetary policy will affect: (9)

a. Consumer spending (Hint: consider interest rates and expectations of future inflation)

b. Investment spending (Hint: consider interest rates)

c. Net Exports (Hint: consider exchange rates)

5. Use the data below to complete the table. Assume the price of the good below is $20. (4)

Price in €	Quantity of exports demanded	Exchange Rate (€/$)*	$ Demanded
500	.25
400	.5
300	.75
200	1

6. Use the graphs to answer the following questions (38)

i. Based on graph C, the Federal Reserve should be more worried about
inflation/unemployment.
(mark the correct answer.)

ii. The Fed should
increase/decrease
the money supply.

iii. On graph A, this will result in the _____________ curve shifting to the ______________.

iv. This will cause interest rates to _______________.

v. Because of this change in interest rates, the quantity of money held by consumers will ___________.

vi. On graph B, the __________curve will shift to the _____________.

vii. The quantity of loanable funds will ________________.

viii. On graph C, the ___________ curve will shift to the ______________.

ix. The price level will ______________.

x. Real GDP will __________________.

xi. Nominal GDP will _________________.

xii. The inflation rate will _________________.

xiii. The unemployment rate will _______________.

xiv. The value of the dollar will ___________________.

xv. Imports will ___________________.

xvi. Exports will ___________________.

7. Why would a government budget deficit result in a trade deficit? (2)

8. Use the graph below to answer the following questions: (22)

Domestic Equilibrium Price

Domestic Equilibrium Quantity

World Price

Will the country import or export?

Quantity demanded at world price

Quantity supplied domestically at world price

Quantity imported or exported

Assume a tariff of $2.50 is imposed on imports.

New price paid by consumers.

New quantity supplied domestically

New quantity demanded

New quantity imported or exported

9. What are some reasons why monetary policy may be ineffective? (3)