# Questions From Past Exams 6

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Running head: ECONOMICS 1
ECONOMICS
NAME:
INSTITUTION:
DATE:

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ECONOMICS 2
QUESTIONS FROM PAST EXAMS
10. a.
Explanation:
The quantity theory of money has the following equation:
MV = PY
In this case, M = money supply
V = velocity of circulation
P = price level
Y = all transactions in the economy.
11. a
Explanation: A one-time increase in the supply of money leads to an increase in aggregate real balances,
money supply increase leads to a rise in the level of price in the long run as the AD cuts on the same level
of long-run output but at higher prices to LRAS.
13. b
Explanation: The actual equation of Quantity theory is MV=PY. Now since money has been further
segregated into money and bonds, we divided the LHS into two parts
14. a
Explanation:
Fisher Equation,
Nominal= Inflation +Real
As per this equation, the inflation rate leads to a one percentage point increase in nominal, whereas no
change in the real rate.
15. d
Explanation:
Money Supply Growth Rate= GDP Growth rate + Inflation Rate= 4+1= 5%
16. e
Explanation:
As per the definition of the monetary base, a monetary base comprises of both, currency as well as
reserves held by the central bank.

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Running head: ECONOMICS 1 ECONOMICS NAME: INSTITUTION: DATE: ECONOMICS 2 QUESTIONS FROM PAST EXAMS 10. a. Explanation: The quantity theory of money has the following equation: MV = PY In this case, M = money supply V = velocity of circulation P = price level Y = all transactions in the economy. 11. a Explanation: A one-time increase in the supply of money leads to an increase in aggregate real balances, money supply increase leads to a rise in the level of price in the long run as the AD cuts on the same level of long-run output but at higher prices to LRAS. 13. b Explanation: The actual equation of Quantity theory is MV=PY. Now since money has been further segregated into money and bonds, we divided the LHS into two parts 14. a Explanation: Fisher Equation, Nominal= Inflation +Real As per this equation, the inflation rate leads to a one percentage point increase in nominal, whereas no change in the real rate. 15. d Explanation: Money Supply Growth Rate= GDP Growth rate + Inflation Rate= 4+1= 5% 16. e Explanation: As per the definition of the monetary base, a monetary base comprises of both, currency as well as reserves held by the central bank. ECONOMICS 3 17. a Explanat ...
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Anonymous
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