Question 1

The classical theory of inflation

Accepted Answer

A)   is also known as the quantity theory of money.
B)   was developed by some of the earliest economic thinkers.
C)   is used by most modern economists to explain the long-run determinants of the inflation rate.
D)   All of the above are correct.

Question 2

When the value of money is on the vertical axis,the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 3

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real GDP.Most economists think this is a good description of the economy in the short run and in the long run.
B)   does not change real GDP.Most economists think this is a good description of the economy in the long run but not the short run.
C)   does change real GDP.Most economists think this is a good description of the economy in the short-run and the long run.
D)   does change real GDP.Most economists think this is a good description of the economy in the long run but not the short run.

Question 4

The price level falls.This might be because the Federal Reserve

Accepted Answer

A)   bought bonds which raised the money supply.
B)   bought bonds which reduced the money supply.
C)   sold bonds which raised the money supply.
D)   sold bonds which reduced the money supply.

Question 5

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 6

If people had been expecting prices to rise but in fact prices fell,then who among the following would benefit?

Accepted Answer

A)   lenders and people holding a lot of currency
B)   lenders but not people holding a lot of currency
C)   people holding a lot of currency but not lenders
D)   neither lenders nor people holding a lot of currency

Question 7

Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1; also suppose the velocity of money is 3.If the money market is in equilibrium,then the economy's real GDP amounts to A)  5,000. B)  7,500. C)  10,000. D)  15,000." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-2.Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 3.If the money market is in equilibrium,then the economy's real GDP amounts to

Accepted Answer

A)   5,000.
B)   7,500.
C)   10,000.
D)   15,000.

Question 8

Other things the same,an increase in velocity means that

Accepted Answer

A)   the rate at which money changes hands falls,so the price level rises.
B)   the rate at which money changes hands falls,so the price level falls.
C)   the rate at which money changes hands rises,so the price level rises.
D)   the rate at which money changes hands rises,so the price level falls.

Question 9

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

Accepted Answer

A)   4 percent
B)   6 percent
C)   8 percent
D)   10 percent

Question 10

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation,real interest rates,and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 11

In which case below is the real interest rate the highest?

Accepted Answer

A)   the nominal interest rate = 4% and inflation = 3%
B)   the nominal interest rate = 3% and inflation = 1%
C)   the nominal interest rate = 2% and inflation = -2%
D)   the nominal interest rate = 1% and inflation = -4%

Question 12

Based on the quantity equation,if Y = 3,000,P = 4,and V = 3,then M =

Accepted Answer

A)   $4,000.
B)   $2,250.
C)   $250.
D)   $36,000.

Question 13

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)   dichotomous variables.
B)   nominal variables.
C)   classical variables.
D)   real variables.

Question 14

An assistant manager at a restaurant gets a $100 a month raise.He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A)   His real and nominal salary have risen.
B)   His real and nominal salary have fallen.
C)   His real salary has risen and his nominal salary has fallen.
D)   His real salary has fallen and his nominal salary has risen.

Question 15

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1 to MS2? A)  an increase in the value of money B)  a decrease in the price level C)  an open-market purchase of bonds by the Federal Reserve D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-3.Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   None of the above is correct.

Question 16

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Accepted Answer

A)   the inflation rate and nominal interest rates.
B)   the inflation rate,but not nominal interest rates.
C)   nominal interest rates,but not the inflation rate.
D)   neither the inflation rate nor nominal interest rates.

Question 17

If Y and V are constant and M doubles,the quantity equation implies that the price level

Accepted Answer

A)   more than doubles.
B)   changes but less than doubles.
C)   doubles.
D)   does not change

Question 18

When inflation rises,people will desire to hold

Accepted Answer

A)   less money and will go to the bank less frequently.
B)   less money and will go to the bank more frequently.
C)   more money and will go to the bank less frequently.
D)   more money and will go to the bank more frequently.

Question 19

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 2,then A)  when the money market is in equilibrium,one dollar purchases about one-third of a basket of goods and services. B)  when the money market is in equilibrium,one unit of goods and services sells for 33 cents. C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-3.If the relevant money-supply curve is the one labeled MS2,then

Accepted Answer

A)   when the money market is in equilibrium,one dollar purchases about one-third of a basket of goods and services.
B)   when the money market is in equilibrium,one unit of goods and services sells for 33 cents.
C)   there is an excess demand for money if the value of money in terms of goods and services is 0.5.
D)   All of the above are correct.

Question 20

When inflation falls,people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.

Exam 22: Money Growth and Inflation

Monetary neutrality means that a change in the money supply

Correct Answer
verified

Based on the quantity equation,if Y = 3,000,P = 4,and V = 3,then M =

Correct Answer
verified

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-3.Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Correct Answer
verified

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

Correct Answer
verified

If people had been expecting prices to rise but in fact prices fell,then who among the following would benefit?

Correct Answer
verified

The price level falls.This might be because the Federal Reserve

Correct Answer
verified

An assistant manager at a restaurant gets a $100 a month raise.He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct Answer
verified

When inflation rises,people will desire to hold

Correct Answer
verified

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation,real interest rates,and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct Answer
verified
Inflation and nominal interest...
View Answer

Economic variables whose values are measured in monetary units are called

Correct Answer
verified

Other things the same,an increase in velocity means that

Correct Answer
verified

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-3.If the relevant money-supply curve is the one labeled MS₂,then

Correct Answer
verified

When the value of money is on the vertical axis,the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Correct Answer
verified

The classical theory of inflation

Correct Answer
verified

When inflation falls,people

Correct Answer
verified

Correct Answer
verified

In which case below is the real interest rate the highest?

Correct Answer
verified

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Correct Answer
verified

If Y and V are constant and M doubles,the quantity equation implies that the price level

Correct Answer
verified

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Correct Answer
verified

Exam 22: Money Growth and Inflation

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

Based on the quantity equation,if Y = 3,000,P = 4,and V = 3,then M =

Correct AnswerverifiedShow Answer

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-3.Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Correct AnswerverifiedShow Answer

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

Correct AnswerverifiedShow Answer

If people had been expecting prices to rise but in fact prices fell,then who among the following would benefit?

Correct AnswerverifiedShow Answer

The price level falls.This might be because the Federal Reserve

Correct AnswerverifiedShow Answer

An assistant manager at a restaurant gets a $100 a month raise.He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct AnswerverifiedShow Answer

When inflation rises,people will desire to hold

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation,real interest rates,and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

Economic variables whose values are measured in monetary units are called

Correct AnswerverifiedShow Answer

Other things the same,an increase in velocity means that

Correct AnswerverifiedShow Answer

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-3.If the relevant money-supply curve is the one labeled MS2,then

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis,the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Correct AnswerverifiedShow Answer

The classical theory of inflation

Correct AnswerverifiedShow Answer

When inflation falls,people

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In which case below is the real interest rate the highest?

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

If Y and V are constant and M doubles,the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
verified

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-3.Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Correct Answer
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Inflation and nominal interest...
View Answer

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Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-3.If the relevant money-supply curve is the one labeled MS₂,then

Correct Answer
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