Joe's Taco Hut can purchase a delivery truck for $20,000 and Joe estimates it will generate a net income (after taxes, maintenance and operating costs) of $2,000 per year. He has no other opportunities. He should:
A. purchase the truck if the real interest rate is greater than 10%.
B. not purchase the truck if the real interest rate is greater than 2%.
C. purchase the truck only if the real interest rate is less than 2%.
D. purchase the truck if the real interest rate is less than 10%.
Answer: D
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In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:
a. -2%, 3%, 3%. b. 4%, 0%, 4%. c. 2%, 8%, 8%. d. 8%, 8%, 4%.
Banks try to keep their level of excess reserves low because
a. the Fed charges a penalty for holdings of excess reserves. b. they are concerned that the money multiplier will become too large. c. they wish to maximize profits. d. bank regulators levy fines on the amount of excess reserves.