1.) A decrease in the reserve requirement ________excess bank reserves and ________ the money supply.
Answers:decreases; decreases
A.) increases; decreases
B.) decreases; increases
C.) increases; increases
2.) Assume growth in velocity is equal to zero and potential (trend) real GDP grows at rate of 2% per year in the long-run.
If the central bank decided to keep the money supply constant, (growth rate = 0), then
A.) the economy would experience deflation of 2% per year.
B.) the economy would experience inflation of 2% per year.
C.) there would be no inflation or deflation.
3.)
In 2009,
real GDP growth = -2.8%
inflation = 0.8%
growth in M2 = 8.1%
Calculate growth in velocity. Answer as a percent, round to one decimal place and do not enter a “%” sign.
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