Question 1

When households and firms sell financial assets, such as government securities, the

Accepted Answer

A)   nominal interest rate falls.
B)   market price of the securities increases.
C)   nominal interest rate rises.
D)   demand for money curve shifts leftward.
E)   supply of money curve shifts leftward.

Question 2

What is the equation of exchange?
 Suppose that real GDP and velocity are constant.In this case, what effect will an increase in the quantity of money have?

Accepted Answer

The equation of exchange is that M × V =...

Question 3

If credit card usage exhibits a sharp increase, there is

Accepted Answer

A)   an upward movement along the demand for money curve.
B)   a downward movement along the demand for money curve.
C)   a rightward shift of the demand for money curve.
D)   a leftward shift of the demand for money curve.
E)   a leftward shift of the supply of money curve.

Question 4

The ________ the price level, the ________.

Accepted Answer

A)   higher; greater the demand for money
B)   higher; smaller the demand for money
C)   lower; greater the demand for money
D)   higher; greater the supply of money
E)   higher; smaller the supply of money

Question 5

Suppose that the price level does not change while real GDP decreases. As a result,

Accepted Answer

A)   the demand for money increases and the demand for money curve shifts rightward.
B)   the supply of money curve shifts leftward.
C)   the supply of money curve shifts rightward.
D)   the quantity of money demanded decreases and there is a movement downward along the demand for money curve.
E)   the demand for money decreases so that households and firms hold smaller amounts of money.

Question 6

-In the figure above, what happens if the Fed increases the quantity of money by 8 percent?

Accepted Answer

A)   The LRMD curve shifts rightward to restore equilibrium.
B)   The value of money falls to 0.92 and there is a movement downward along the LRMD.
C)   The price level falls to 1.08.
D)   The interest rate rises to 1.08.
E)   The value of money rises to 1.08.

Question 7

Suppose a country has a real interest rate of 4 percent and an inflation rate of 3 percent.If the income tax rate is 20 percent, then the after-tax real interest rate is

Accepted Answer

A)   2.6 percent.
B)   4.0 percent.
C)   5.6 percent.
D)   7.0 percent.
E)   1.4 percent.

Question 8

Every day, ________ changes to make the quantity of money demanded equal the quantity of money supplied.

Accepted Answer

A)   real GDP
B)   the money supply
C)   the price level
D)   the nominal interest rate
E)   the inflation rate

Question 9

The demand for money increases and the demand curve for money shifts rightward as a result of

Accepted Answer

A)   an increase in real GDP.
B)   a decrease in the real interest rate.
C)   an increase in the use of credit cards.
D)   a decrease in the price level.
E)   a decrease in the nominal interest rate.

Question 10

Which of the following shifts the demand for money curve?
i. change in the nominal interest rate
ii. change in real GDP
iii. change in the price level

Accepted Answer

A)   i only
B)   ii only
C)   iii only
D)   ii and iii
E)   i, ii, and iii

Question 11

When the opportunity cost of holding money increases, then

Accepted Answer

A)   people want to hold more money.
B)   the real interest rate falls.
C)   the nominal interest rate falls.
D)   people want to hold less money.
E)   the quantity of money supplied increases.

Question 12

-The figure above shows the money market.At which interest rate are people selling bonds and thereby changing the interest rate?

Accepted Answer

A)   6 percent
B)   5 percent
C)   4 percent
D)   6 percent and 4 percent
E)   6 percent, 5 percent, and 4 percent

Question 13

The demand for money increases and the demand for money curve shifts rightward if

Accepted Answer

A)   the real interest rate increase.
B)   the nominal interest rate increases.
C)   the price level increases.
D)   the inflation rate increases.
E)   real GDP decreases.

Question 14

Define the quantity theory of money and show how it is related to the equation of exchange.

Accepted Answer

The quantity theory of money is the prop...

Question 15

Hyperinflation is defined as periods of

Accepted Answer

A)   negative price changes.
B)   low inflation.
C)   inflation over 50 percent per month.
D)   inflation under 10 percent per year.
E)   inflation over 25 percent per year

Question 16

In the money market, if the price level rises, then the demand for money ________ and the equilibrium nominal interest rate ________.

Accepted Answer

A)   increases; rises
B)   increases; falls
C)   decreases; rises
D)   decreases; falls
E)   increases; does not change

Question 17

The lower the nominal interest rate, the

Accepted Answer

A)   greater the demand for money.
B)   greater the quantity of money demanded.
C)   greater the quantity of money supplied.
D)   smaller the demand for goods and services.
E)   smaller the quantity of money demanded.

Question 18

In the long run, the price level adjusts

Accepted Answer

A)   so that the real interest rate equals the nominal interest rate.
B)   so that the inflation rate equals zero.
C)   to achieve money market equilibrium.
D)   so that the inflation rate equals the growth rate of real GDP.
E)   so that the inflation rate is moderate.

Question 19

When the nominal interest rate increases, the

Accepted Answer

A)   quantity of money demanded increases and there is a movement upward along the demand for money curve.
B)   quantity of money demanded decreases and there is a movement upward along the demand for money curve.
C)   demand for money increases and the demand for money curve shifts rightward.
D)   demand for money decreases and the demand for money curve shifts leftward.
E)   supply of money curve shifts rightward.

Question 20

Assume the Fed is concerned with a possible recession so it wants to lower the interest rate.How does the Fed lower the interest rate in the short run?

Accepted Answer

In order to lower the interest...

Exam 12: Money, Interest, and Inflation

The demand for money increases and the demand curve for money shifts rightward as a result of

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In the long run, the price level adjusts

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Which of the following shifts the demand for money curve? i. change in the nominal interest rate ii. change in real GDP iii. change in the price level

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-The figure above shows the money market.At which interest rate are people selling bonds and thereby changing the interest rate?

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Every day, ________ changes to make the quantity of money demanded equal the quantity of money supplied.

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Define the quantity theory of money and show how it is related to the equation of exchange.

Correct AnswerverifiedThe quantity theory of money is the prop...View AnswerShow Answer

In the money market, if the price level rises, then the demand for money ________ and the equilibrium nominal interest rate ________.

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When the nominal interest rate increases, the

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When the opportunity cost of holding money increases, then

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-In the figure above, what happens if the Fed increases the quantity of money by 8 percent?

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The lower the nominal interest rate, the

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Assume the Fed is concerned with a possible recession so it wants to lower the interest rate.How does the Fed lower the interest rate in the short run?

Correct AnswerverifiedIn order to lower the interest...View AnswerShow Answer

The demand for money increases and the demand for money curve shifts rightward if

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If credit card usage exhibits a sharp increase, there is

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The ________ the price level, the ________.

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Suppose a country has a real interest rate of 4 percent and an inflation rate of 3 percent.If the income tax rate is 20 percent, then the after-tax real interest rate is

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Hyperinflation is defined as periods of

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When households and firms sell financial assets, such as government securities, the

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Suppose that the price level does not change while real GDP decreases. As a result,

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What is the equation of exchange? Suppose that real GDP and velocity are constant.In this case, what effect will an increase in the quantity of money have?

Correct AnswerverifiedThe equation of exchange is that M × V =...View AnswerShow Answer

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The quantity theory of money is the prop...
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In the money market, if the price level rises, then the demand for money and the equilibrium nominal interest rate .

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In order to lower the interest...
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The the price level, the .

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The equation of exchange is that M × V =...
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