Question 1

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

Question 2

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 3

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Accepted Answer

rapid money supply g...

Question 4

The inflation tax refers to

Accepted Answer

A)  the revenue a government creates by printing money.
B)  higher inflation which requires more frequent price changes.
C)  the idea that, other things the same, an increase in the tax rate raises the inflation rate.
D)  taxes being indexed for inflation.E) C) and D)
F) B) and C)

Question 5

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Accepted Answer

The answer of The idea that firms incur actual costs...

Question 6

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)  the value of money.
B)  real interest rates.
C)  nominal interest rates.
D)  the money supply.E) B) and C)
F) A) and C)

Question 7

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 8

If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?

Accepted Answer

P = MV/Y. With the numbers giv...

Question 9

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 10

If inflation is less than expected, who is wealth redistributed to?

Accepted Answer

The answer of If inflation is less than expected, who...

Question 11

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat...

Question 12

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 13

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

Open marke...

Question 14

On a given morning, Franco sold 40 pairs of shoes for a total of $800 at his shoe store.

Accepted Answer

A)  The $800 is a real variable.The quantity of shoes is a nominal variable.
B)  The $800 is a nominal variable.The quantity of shoes is a real variable.
C)  Both the $800 and the quantity of shoes are nominal variables.
D)  Both the $800 and the quantity of shoes are real variables.E) A) and B)
F) All of the above

Question 15

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 16

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 17

Figure 30-2
In the graph, MS represents the money supply and MD represents money demand. The vertical axis is the value of money measured as 1/P and the horizontal axis is the quantity of money. 
-Refer to Figure 30-2. What quantity is measured along the vertical axis?

Accepted Answer

A)  The price level
B)  The real interest rate
C)  The value of money
D)  The quantity of moneyE) B) and D)
F) B) and C)

Question 18

Which of the following helps to explain why the "inflation fallacy" is a fallacy?

Accepted Answer

A)  Increases in the price level can be created by increases in money demand.
B)  Nominal incomes tend to rise at the same time that the price level is rising, leaving real income unchanged.
C)  As the price level rises, the value of a dollar falls.
D)  Inflation only changes real variables.E) C) and D)
F) A) and D)

Question 19

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 20

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)  both the classical dichotomy and the quantity theory of money.
B)  the classical dichotomy, but not the quantity theory of money.
C)  the quantity theory of money, but not the classical dichotomy.
D)  neither the classical dichotomy nor the quantity theory of money.E) A) and D)
F) All of the above

Exam 30: Money Growth and Inflation

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts. ...View AnswerShow Answer

An increase in money demand would create a surplus of money at the original value of money.

Correct AnswerverifiedShow Answer

On a given morning, Franco sold 40 pairs of shoes for a total of $800 at his shoe store.

Correct AnswerverifiedShow Answer

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Correct AnswerverifiedOpen marke...View AnswerShow Answer

List and define any two of the costs of high inflation.

Correct AnswerverifiedThe costs include:Shoeleather costs: th...View AnswerShow Answer

If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?

Correct AnswerverifiedP = MV/Y. With the numbers giv...View AnswerShow Answer

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Correct Answerverifiednominal interest rat...View AnswerShow Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

The quantity equation is M x V = P x Y.

Correct AnswerverifiedShow Answer

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Correct Answerverifiedrapid money supply g...View AnswerShow Answer

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Correct AnswerverifiedShow Answer

If money demand shifts right, the price level falls.

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

Figure 30-2 In the graph, MS represents the money supply and MD represents money demand. The vertical axis is the value of money measured as 1/P and the horizontal axis is the quantity of money. -Refer to Figure 30-2. What quantity is measured along the vertical axis?

Correct AnswerverifiedShow Answer

The inflation tax refers to

Correct AnswerverifiedShow Answer

If inflation is less than expected, who is wealth redistributed to?

Correct AnswerverifiedShow Answer

Which of the following helps to explain why the "inflation fallacy" is a fallacy?

Correct AnswerverifiedShow Answer

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Correct AnswerverifiedShow Answer

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Correct AnswerverifiedShow Answer

Correct Answer
verified
Most had large nominal debts. ...
View Answer

Correct Answer
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Correct Answer
verified

Correct Answer
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Open marke...
View Answer

Correct Answer
verified
The costs include:
Shoeleather costs: th...
View Answer

Correct Answer
verified
P = MV/Y. With the numbers giv...
View Answer

Correct Answer
verified
nominal interest rat...
View Answer

Correct Answer
verified

Correct Answer
verified

In the long run inflation is explained by . For countries that had hyperinflation this source of inflation arose primarily because the government .

Correct Answer
verified
rapid money supply g...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

The idea that firms incur actual costs when they change prices is known as _. Firms in countries with lower inflation rates will change price _ frequently compared to those countries where inflation is higher.

Correct Answer
verified

Correct Answer
verified