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.