Question 1

According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

Accepted Answer

A)   nominal and real GDP would rise by 5 percent.
B)   nominal GDP would rise by 5 percent;real GDP would be unchanged.
C)   nominal GDP would be unchanged;real GDP would rise by 5 percent.
D)   neither nominal GDP nor real GDP would change.E) None of the above
F) A) and D)

Question 2

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A)   the inflation tax.
B)   menu costs.
C)   the inflation fallacy.
D)   shoeleather costs.E) A) and B)
F) A) and C)

Question 3

The irrelevance of monetary changes for real variables is called monetary neutrality.Most economists accept monetary neutrality as a good description of the economy in the long run,but not the short run.

Accepted Answer

A) True 
 B)False

Question 4

If P denotes the price of goods and services measured in terms of money,then

Accepted Answer

A)   1/P represents the value of money measured in terms of goods and services.
B)   P can be regarded as the "overall price level."
C)   an increase in the value of money is associated with a decrease in P.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 5

Which of the following is correct?

Accepted Answer

A)   If the Fed purchases bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
B)   If the Fed sells bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
C)   If the Fed purchases bonds,then the money supply curve shifts right.An increase in the price level shifts the money supply curve right.
D)   If the Fed sells bonds,then the money supply curve shifts right.A decrease in the price level shifts the money supply curve right.E) A) and D)
F) B) and C)

Question 6

Which of the following is correct?

Accepted Answer

A)   The classical dichotomy separates real and nominal variables.
B)   Monetary neutrality is the proposition that changes in the money supply do not change real variables.
C)   When studying long-run changes in the economy,the neutrality of money offers a good description of how the world works.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 7

If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

Accepted Answer

The value ...

Question 8

Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A)   The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
B)   The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
C)   The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
D)   The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.E) B) and C)
F) All of the above

Question 9

For a given real interest rate,an increase in inflation makes the after-tax real interest rate

Accepted Answer

A)   decrease,which encourages savings.
B)   decrease,which discourages savings.
C)   increase,which encourages savings.
D)   increase,which discourages savings.E) All of the above
F) B) and C)

Question 10

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 11

The Fisher effect says that

Accepted Answer

A)   the nominal interest rate adjusts one for one with the inflation rate.
B)   the growth rate of the money supply is negatively related to the velocity of money.
C)   real variables are heavily influenced by the monetary system.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 12

With the value of money on the vertical axis,the money supply curve is

Accepted Answer

A)   upward-sloping.
B)   downward-sloping.
C)   horizontal.
D)   vertical.E) None of the above
F) A) and C)

Question 13

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)   Austria in the 1920's.
B)   Hungary in the 1920's.
C)   Poland in the 1920's.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 14

When the money market is drawn with the value of money on the vertical axis,if the price level is above the equilibrium level,there is an

Accepted Answer

A)   excess demand for money,so the price level will rise.
B)   excess demand for money,so the price level will fall.
C)   excess supply of money,so the price level will rise.
D)   excess supply of money,so the price level will fall.E) A) and C)
F) A) and B)

Question 15

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.E) A) and B)
F) A) and C)

Question 16

Suppose an economy produces only ice cream cones.If the price level rises,the value of currency

Accepted Answer

A)   rises,because one unit of currency buys more ice cream cones.
B)   rises,because one unit of currency buys fewer ice cream cones.
C)   falls,because one unit of currency buys more ice cream cones.
D)   falls,because one unit of currency buys fewer ice cream cones.E) All of the above
F) None of the above

Question 17

The value of money falls as the price level

Accepted Answer

A)   rises,because the number of dollars needed to buy a representative basket of goods rises.
B)   rises,because the number of dollars needed to buy a representative basket of goods falls.
C)   falls,because the number of dollars needed to buy a representative basket of goods rises.
D)   falls,because the number of dollars needed to buy a representative basket of goods falls.E) A) and B)
F) A) and D)

Question 18

As the price level rises,the value of money

Accepted Answer

A)   increases,so people want to hold more of it.
B)   increases,so people want to hold less of it.
C)   decreases,so people want to hold more of it.
D)   decreases,so people want to hold less of it.E) A) and B)
F) None of the above

Question 19

The real interest rate is 8 percent and the nominal interest rate is 10.5 percent.Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)   deflation;2.5 percent
B)   deflation;20.5 percent
C)   inflation;2.5 percent
D)   inflation;20.5 percentE) A) and D)
F) B) and C)

Question 20

If velocity = 5,the price level = 1.5,and the real value of output is 2,500,then the quantity of money is

Accepted Answer

A)   333.33.
B)   750.00.
C)   1,050.00.
D)   8,333.33.E) A) and B)
F) A) and D)

Exam 30: Money Growth and Inflation

The Fisher effect says that

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According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

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Which of the following is correct?

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If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

Correct AnswerverifiedThe value ...View AnswerShow Answer

The idea that inflation by itself reduces people's purchasing power is called

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With the value of money on the vertical axis,the money supply curve is

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Which of the following is correct?

Correct AnswerverifiedShow Answer

Suppose an economy produces only ice cream cones.If the price level rises,the value of currency

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,if the price level is above the equilibrium level,there is an

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The value of money falls as the price level

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As the price level rises,the value of money

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For a given real interest rate,an increase in inflation makes the after-tax real interest rate

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The irrelevance of monetary changes for real variables is called monetary neutrality.Most economists accept monetary neutrality as a good description of the economy in the long run,but not the short run.

Correct AnswerverifiedShow Answer

The real interest rate is 8 percent and the nominal interest rate is 10.5 percent.Is there inflation or deflation? What is the inflation or deflation rate?

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The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

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 P denotes the price of goods and services measured in terms of money,then

Correct AnswerverifiedShow Answer

If velocity = 5,the price level = 1.5,and the real value of output is 2,500,then the quantity of money is

Correct AnswerverifiedShow Answer

Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Correct AnswerverifiedShow Answer

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