Question 1

You bought some shares of stock and,over the next year,the price per share increased by 5 percent and the price level increased by 8 percent.Before taxes,you experienced

Accepted Answer

A)   both a nominal gain and a real gain,and you paid taxes on the nominal gain.
B)   both a nominal gain and a real gain,and you paid taxes only on the real gain.
C)   a nominal gain and a real loss,and you paid taxes on the nominal gain.
D)   a nominal gain and a real loss,and you paid no taxes on the transaction.E) A) and D)
F) All of the above

Question 2

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 3

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply causes the equilibrium value of money

Accepted Answer

A)   and equilibrium quantity of money to increase.
B)   and equilibrium quantity of money to decrease.
C)   to increase,while the equilibrium quantity of money decreases.
D)   to decrease,while the equilibrium quantity of money increases.E) B) and D)
F) B) and C)

Question 4

You put money into an account and earn a real interest rate of 6 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   4.8 percent
B)   3.2 percent
C)   2.8 percent
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 5

According to the principle of monetary neutrality,a decrease in the money supply will not change

Accepted Answer

A)   nominal GDP.
B)   the price level.
C)   unemployment.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 6

Which of the following is correct?

Accepted Answer

A)   Inflation impedes financial markets in their role of allocating savings to alternative investments.
B)   Inflation encourages savings through the tax treatment on capital gains.
C)   Inflation encourages larger holdings of currency by the public.
D)   Inflation reduces people's real purchasing power.E) C) and D)
F) All of the above

Question 7

In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

Accepted Answer

A)   selling bonds on the open market,which would have raised the value of money
B)   purchasing bonds on the open market,which would have raised the value of money.
C)   selling bonds on the open market,which would have raised the value of money.
D)   purchasing bonds on the open market,which would have lowered the value of money.E) A) and D)
F) None of the above

Question 8

Suppose that M is fixed.According to the quantity equation,which of the following would make the price level lower?

Accepted Answer

A)   Y or V rise
B)   Y or V fall
C)   Y rises or V falls
D)   Y falls or V risesE) B) and C)
F) None of the above

Question 9

If the CPI rises,the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)   increases,and so the value of money rises.
B)   increases,and so the value of money falls.
C)   decreases,and so the value of money rises.
D)   decreases,and so the value of money fallsE) All of the above
F) None of the above

Question 10

Deflation

Accepted Answer

A)   increases incomes and enhances the ability of debtors to pay off their debts.
B)   increases incomes and reduces the ability of debtors to pay off their debts.
C)   decreases incomes and enhances the ability of debtors to pay off their debts.
D)   decreases incomes and reduces the ability of debtors to pay off their debts.E) A) and B)
F) C) and D)

Question 11

In which case below does a person's purchasing power from saving increase the least?

Accepted Answer

A)   the nominal interest rate = 10% and inflation = 8%
B)   the nominal interest rate = 9% and inflation = 6%
C)   the nominal interest rate = 8% and inflation = 4%
D)   the nominal interest rate = 7% and inflation = 2%E) C) and D)
F) A) and B)

Question 12

If the Fed conducts open market sales,the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 13

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Accepted Answer

A)   increases the price level by more than 5 percent.
B)   increases the price level by 5 percent.
C)   increases the price level by 5 percent
D)   does not change the price level.E) All of the above
F) C) and D)

Question 14

According to the assumptions of the quantity theory of money,if the money supply decreases by 7 percent,then

Accepted Answer

A)   nominal and real GDP would fall by 7 percent.
B)   nominal GDP would fall by 7 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would fall by 7 percent.
D)   neither nominal GDP nor real GDP would change.E) A) and B)
F) C) and D)

Question 15

If P = 2 and Y = 1000,then which of the following pairs of values are possible?

Accepted Answer

A)   M = 500,V = 4
B)   M = 1500,V = 3
C)   M = 2000,V = 2
D)   M = 500,V = 1E) B) and C)
F) All of the above

Question 16

From the early 1980's through the 1990's,the nominal interest rate

Accepted Answer

A)   fell because the Fed got inflation under control.
B)   fell because the Fed let inflation get out of control.
C)   rose because the Fed got inflation under control.
D)   rose because the Fed let inflation get out of control.E) A) and D)
F) All of the above

Question 17

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

Accepted Answer

A)   upward sloping because people supply a larger quantity of money when the value of money increases.
B)   downward sloping because people supply a larger quantity of money when the value of money decreases.
C)   horizontal because we assume the central bank controls the money supply
D)   vertical because we assume the central bank controls the money supply.E) B) and C)
F) None of the above

Question 18

In order to maintain stable prices,a central bank must

Accepted Answer

A)   maintain low interest rates.
B)   keep unemployment low.
C)   tightly control the money supply.
D)   sell indexed bonds.E) A) and B)
F) A) and C)

Question 19

Other things the same,a decrease 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.E) None of the above
F) A) and B)

Question 20

Figure 22-1 1,then A)  there is no excess supply or excess demand if the value of money is 2. B)  the equilibrium is at point C. C)  there is an excess supply of money if the value of money is 1. D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-1.If the current money supply is MS1,then

Accepted Answer

A)   there is no excess supply or excess demand if the value of money is 2.
B)   the equilibrium is at point C.
C)   there is an excess supply of money if the value of money is 1.
D)   None of the above is correct.E) None of the above
F) A) and B)

Exam 22: Money Growth and Inflation

According to the assumptions of the quantity theory of money,if the money supply decreases by 7 percent,then

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Suppose that M is fixed.According to the quantity equation,which of the following would make the price level lower?

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In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

Correct AnswerverifiedShow Answer

Other things the same,a decrease in velocity means that

Correct AnswerverifiedShow Answer

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

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If P = 2 and Y = 1000,then which of the following pairs of values are possible?

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In which case below does a person's purchasing power from saving increase the least?

Correct AnswerverifiedShow Answer

From the early 1980's through the 1990's,the nominal interest rate

Correct AnswerverifiedShow Answer

If the CPI rises,the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply causes the equilibrium value of money

Correct AnswerverifiedShow Answer

According to the principle of monetary neutrality,a decrease in the money supply will not change

Correct AnswerverifiedShow Answer

You bought some shares of stock and,over the next year,the price per share increased by 5 percent and the price level increased by 8 percent.Before taxes,you experienced

Correct AnswerverifiedShow Answer

In order to maintain stable prices,a central bank must

Correct AnswerverifiedShow Answer

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Correct AnswerverifiedShow Answer

Figure 22-1 -Refer to Figure 22-1.If the current money supply is MS1,then

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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

Which of the following is correct?

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If the Fed conducts open market sales,the equilibrium value of money decreases and the equilibrium price level increases.

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You put money into an account and earn a real interest rate of 6 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

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Deflation

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Figure 22-1 -Refer to Figure 22-1.If the current money supply is MS₁,then

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