1.  Assume the only thing to buy in the economy is widgets. Assume that the people in this economy want to make 30 trades during a year (want to buy 30 widgets).  Each widget cost $5.  Assume ceteris paribus.

    a.  If the velocity of money is equal to 1, how many dollars are demanded (i.e., what is the transactions demand for money)?  Explain your answer in words and numbers. (4 pts.)

    b.  If the velocity of money is equal to 3, how many dollars are demanded (i.e., what is the transactions demand for money)?  Explain your answer in words and numbers. (4 pts.)

For all multiple choice questions - you must type your answer or it will not count.  For example, at the end of the question, type:  answer: a or b or c, etc.  Again, all answers not typed in your homework will not count. (2 pts. each)

2.  The essential characteristic required before any physical object can function as money is that:

a. it be issued by the government.

b. it be backed by a precious metal.

c. the supply of it be unlimited and uncontrolled.

d. people have a high value for it and accept it in trade

e. none of the above make sense

3.  To say that money functions as a medium of exchange is to say that

a. it is the preferred form of compensation for fortune-tellers, mediums, and those through whom the spirit world is contacted

b. it is the generally accepted form of payment for goods and services.

c. it is the common unit for an individual of comparing the value of goods and services.

d. it is bought and sold on the stock exchange.

e. none of the above make sense

Answer:

4.  Betty deposits $100 into her savings account each month.  Her daughter Bev keeps all her pennies in a piggy bank. These are particular examples of money functioning as ______________________________ for Betty and Bev (at this time).

           a. a store of value.

           b. commodity money.

           c. a medium of exchange.

           d. a unit of account.

           e. all of the above are true

Answer:

5.  The first bankers were probably

a. carpenters.

b. stock brokers.

c. goldsmiths.

d. sea captains

e. economists

Answer:

6.  Under the pure gold standard

        a.  circulating fiat money is fully backed by gold.

        b.  the government authorities can easily manipulate the money supply.

        c.  prices are likely to increase on a regular basis.

        d.  the power of monetary policy is limited.

        e.  more than one answer is correct

Answer: 

7.  If the pie (or aggregate supply) increases - this will cause:

        a.    Inflation to likely increase.

        b.    The money supply to likely increase.

        c.    The demand for money to likely increase.

        d.    The velocity of money to likely increase.

        e.    None of the above makes sense.

Answer: 

8.    Today's money in your pocket is a:

        a.    Commodity money

        b.    Fully backed fiat money

        c.    Partially backed fiat money

        d.    Non-backed fiat money

        e.    None of the above makes sense.

Answer: 

9.   Inflation can be defined as:

        a.     The percentage increase in a specific good's price.

        b.     A change in purchasing power of the dollar

        c.     An increase in the general (overall) price level

        d.     A decrease in the value of money

        e.     The percentage change in the overall price level.

Answer: 

10.  If the velocity of money is 6 (during a year), this means:

        a.  every dollar in the economy is spent six times during the year.

        b.  a dollar will buy six times as much as it did last year.

        c.  on average, dollars in the economy are spent six times during that year

        d.  dollars multiply by 6

        e.  none of the above make sense

Answer:

11.  Which of the following would not be considered "fiscal policy" (assume all are done to manipulate the economy)?

        a.  an increase in the income tax rate.

        b.  a cut in federal unemployment compensation.

        c.  a change in the money supply.

        d.  abolishing the income tax and implementing a national sales tax.

        e.  more than one answer is correct

Answer: