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QUIZ NO. 2

Macro-Economics

Multiple Choice— Select the option that best completes the sentence or provides the answer to the question.

If most individuals will accept paper currency in transactions and paper currency is convertible into gold, then banks can safely issue
1. more paper currency than the value of the gold they hold.
2. as much paper currency as they please.
3. paper currency equal to the bank's commercial debt divided by their gold reserves.
4. paper currency equal to a fraction of the gold they hold.


When I expect interest rates to rise in the near future, I will be willing to
1. buy bonds, but only if their price falls.
2. sell bonds now.
3. put my money in a savings account rather than buy bonds.
4. buy bonds now.


If a person is holding money for the purchase of goods and services, this demand for money is known as the
1. speculative motive.
2. nominal balance motive.
3. transactions motive.
4. real balance motive.


Doug is saving money in a piggy bank to purchase a new snowboard next winter. This represents using money as
1. a store of value.
2. a medium of exchange.
3. a unit of account.
4. all of the above


The statement that "Inflation is everywhere and always a monetary phenomenon" is associated with
1. J.M. Keynes.
2. Adam Smith.
3. Paul Martin.
4. Milton Friedman.


If the interest rate is 10 percent, an individual would be indifferent between receiving $5.00 today or
1. $4.00 one year from now.
2. $4.50 one year from now.
3. $5.00 one year from now.
4. $5.50 one year from now.


Full employment means that there exists
1. an unemployment rate of less than 5 percent.
2. only involuntary unemployment.
3. only structural and/or frictional unemployment.
4. no job vacancies at the time.


With respect to the balance of payments,
1. if the current account is in surplus, the capital account must also be in surplus.
2. the current account balance must be zero.
3. if the current account is in deficit, the capital account must also be in deficit.
4. total payments must equal total receipts.


The speculative motive for holding money implies that the demand for money
1. is less than the demand for holding bonds as long as the rate of interest exceeds zero.
2. varies positively with wealth and negatively with the rate of interest.
3. varies negatively with wealth and positively with the rate of interest.
4. has no relation to the rate of interest.


According to the views of classical economists, if the money supply doubles,
1. money prices will double.
2. relative prices will double.
3. there will be no effect on money prices.
4. money prices will be halved.