Principles of Macroeconomics (ECO1104)
Assignment 3
Note: We suppose that United States is the domestic country
1. You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you
kept in your piggy bank illustrates money's function as a _______. The laptop's price is
posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to
purchase the laptop. This transaction illustrates money's function as a ______.
a. store of value, medium of exchange, unit of account
b. store of value, unit of account, medium of exchange
c. medium of exchange, unit of account, store of value
d. medium of exchange, store of value, unit of account
Table 1
The information in the following table pertains to the hypothetical economy of Florencial.
Amount
Type of Money
(Billions of dollars)
Large time deposits 120
Small time deposits 80
Demand deposits 300
Other checkable deposits 50
Savings deposits 65
Traveler's checks 5
Money market mutual funds 200
Currency 150
Credit card balances 300
Miscellaneous categories of M2 30
2. Refer to Table 1. What is the M1 money supply in Florencial?
a. $705 billion
b. $570 billion
c. $505 billion
d. $585 billion
3. Refer to Table 1. What is the M2 money supply in Florencial?
a. $1,300 billion
b. $580 billion
c. $880 billion
d. $1,000 billion
4. When the Fed conducts open-market sales,
a. it sells Treasury securities, which increases the money supply.
b. it auctions term loans, which increases the money supply.
c. it auctions term loans, which decreases the money supply.
d. it sells Treasury securities, which decreases the money supply.
5. Based on the quantity equation, if Y = $10,000, P = 2.75, and V = 8, then M =
a. $6,563.
b. $3,438.
c. $1,719.
d. $1,719.
6. Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This
year, she spent all of her income to purchase 180 units of corn at $6 per unit.
a. Jane's nominal income and real income decreased this year.
b. Jane's nominal income decreased this year, but her real income increased.
c. Jane's nominal income and real income increased this year.
d. Jane's nominal income increased this year, but her real income decreased.
Figure 1
In the graph, MS represents the money supply and MD represents money demand. The
vertical axis is the value of money measured as 1/P and the horizontal axis is the quantity of
money.
7. Refer to Figure 1. What quantity is measured along the vertical axis?
a. The price level
b. The real interest rate
c. The value of money
d. The quantity of money
8. Refer to Figure 1. If the relevant money-demand curve is the one labeled MD2, then the
equilibrium value of money is
a. 0.525 and the equilibrium price level is 1.9.
b. 1.9 and the equilibrium price level is 0.525.
c. 0.525 and the equilibrium price level cannot be determined from the graph.
d. 1.9 and the equilibrium price level cannot be determined from the graph.
9. Refer to Figure 1. Suppose the relevant money-demand curve is the one labeled MD2;
also suppose the velocity of money is 2. If the money market is in equilibrium, then the
economy's real GDP amounts to
a. 4,761.9.
b. 9,523.8.
c. 5,250.0.
d. 10,000.0.
10. Under the assumptions of the Fisher effect and monetary neutrality, if the money supply
growth rate rises, then
a. both the nominal and the real interest rate rise.
b. neither the nominal nor the real interest rate rise.
c. the nominal interest rate rises, but the real interest rate does not.
d. the real interest rate rises, but the nominal interest rate does not.
11. Other things the same, if the exchange rate changes from 35 Thai bhat per dollar to 21
Thai bhat per dollar, then the dollar has
a. appreciated and so buys more Thai goods.
b. appreciated and so buys fewer Thai goods.
c. depreciated and so buys more Thai goods.
d. depreciated and so buys fewer Thai goods.
12. In an open economy, national saving equals
a. domestic investment plus net capital outflow.
b. domestic investment minus net capital outflow.
c. domestic investment.
d. net capital outflow.
13. If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per
ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal
exchange rate?
a. 15/4 or 3.75 pounds per dollar
b. 5/3 or 1.67 pounds per dollar
c. 3/5 or 0.6 pounds per dollar
d. 4/15 or 2.67 pounds per dollar
14. Suppose a Starbucks tall latte costs $4.00 in the United States and 2.50 euros in the Euro
area. Also, suppose a McDonald’s Big Mac costs $4.50 in the United States and 3.60 euros in
the Euro area. If the nominal exchange rate is 0.80 euros per dollar, which goods have prices
that are consistent with purchasing-power parity?
a. Both the tall latte and the Big Mac
b. The tall latte but not the Big Mac
c. The Big Mac but not the tall latte
d. Neither the Big Mac nor the tall latte
15. When Jorge, a Spanish citizen, sells dresses he designs to Romania, the sale is
a. both Romania's and Spain's import.
b. Romania's import and Spain's export.
c. Romania's export and Spain's import.
d. both Romania's and Spain's export.
