4. The purchasing power of the dollar would fall by 20% if the price index rises

ID: 1187531 • Letter: 4

Question

4. The purchasing power of the dollar would fall by 20% if the price index rises by:

A. 44 percent

B. 12.5 percent

C. 25 percent

D. 10 percent

5. Refer to the above table. Suppose that the transactions demand for money is equal

to 20 percent of the nominal GDP, the supply of money is $800 billion, and

demand for money is that shown in the table. If the nominal GDP is $2000 billion,

the equilibrium interest rate is:

A. 5 percent

B. 7 percent

C. 4 percent

D. 6 percent

6. Refer to the above table. Suppose that the transactions demand for money is $300

billion and the money supply is $700 billion. A decrease in the money supply to $600

billion would cause the interest rate to:

A. Fall to 4 percent

B. Rise to 7 percent

C. Rise to 6 percent

D. Fall to 5 percent

16. Refer to the above table. The size of the M2 money supply is:

A. $2,054 billion

B. $2,696 billion

C. $6,792 billion

D. $5,899 billion

4. C 5. A 6. B 16. D

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