Question 1

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A)   menu costs and shoeleather costs
B)   menu costs but not shoeleather costs.
C)   shoeleather costs but not menu costs
D)   menu costs but not shoeleather costsE) A) and D)
F) A) and C)

Question 3

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

Accepted Answer

A)   upward, because at higher prices people want to hold more money.
B)   downward, because at higher prices people want to hold more money.
C)   downward, because at higher price people want to hold less money.
D)   upward, because at higher prices people want to hold less money.E) A) and B)
F) A) and C)

Question 4

Suppose that velocity rises while the money supply stays the same. It follows that

Accepted Answer

A)   P x Y must rise.
B)   P x Y must fall.
C)   P x Y must be unchanged.
D)   the effects on P x Y are uncertain.E) A) and B)
F) A) and C)

Question 5

Wealth is redistributed from debtors to creditors when inflation is

Accepted Answer

A)   high, whether it is expected or not.
B)   low, whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.E) All of the above
F) None of the above

Question 6

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)   excess demand for money that will result in an increase in spending.
B)   excess demand for money that will result in a decrease in spending.
C)   excess supply of money that will result in an increase in spending.
D)   excess supply of money that will result in a decrease in spending.E) B) and C)
F) A) and D)

Question 7

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)   inflation, nominal interest rates, and real interest rates.
B)   inflation and nominal interest rates, but does not change real interest rates.
C)   inflation and real interest rates, but does not change nominal interest rates.
D)   neither inflation, nominal interest rates, or real interest rates.E) A) and D)
F) None of the above

Question 8

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

Accepted Answer

A)   10 percent
B)   7 percent
C)   3 percent
D)   2.5 percentE) None of the above
F) B) and D)

Question 9

The value of money rises 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) B) and D)
F) B) and C)

Question 10

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Accepted Answer

A)   real output only.
B)   nominal output only.
C)   the price level only.
D)   both the price level and nominal output.E) B) and D)
F) B) and C)

Question 11

Which of the following is not correct?

Accepted Answer

A)   The inflation rate is measured as the percentage change in a price index.
B)   For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent.
C)   During the 19th century there were long periods of falling prices in the U.S.
D)   Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.E) All of the above
F) C) and D)

Question 12

If the Fed increases the money supply, then 1/P

Accepted Answer

A)   falls, so the value of money falls.
B)   falls, so the value of money rises.
C)   rises, so the value of money falls.
D)   rises, so the value of money rises.E) A) and D)
F) B) and C)

Question 13

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A)   shift to the right of the money demand curve.
B)   shift to the left of the money demand curve.
C)   movement to the left along the money demand curve.
D)   movement to the right along the money demand curve.E) B) and D)
F) None of the above

Question 14

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 15

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not implied by the quantity equation?

Accepted Answer

A)   If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output.
B)   If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level.
C)   With constant money supply and output, an increase in velocity creates an increase in the price level.
D)   With constant money supply and velocity, an increase in output creates a proportional increase in the price level.E) A) and B)
F) All of the above

Question 17

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t...

Question 18

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A)   real GDP
B)   unemployment
C)   nominal interest rates
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 19

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A)   increase real GDP and the price level.
B)   increase real GDP, but not the price level.
C)   increase the price level, but not real GDP.
D)   increase neither the price level nor real GDP.E) B) and C)
F) A) and D)

Question 20

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Accepted Answer

A)   Unemployment
B)   Productivity
C)   Inflation
D)   Monetary policyE) None of the above
F) All of the above

Exam 12: Money Growth and Inflation

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Correct AnswerverifiedShow Answer

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

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Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Correct AnswerverifiedShow Answer

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

The principle of monetary neutrality implies that an increase in the money supply will

Correct AnswerverifiedShow Answer

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Correct AnswerverifiedShow Answer

The value of money rises as the price level

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Correct AnswerverifiedShow Answer

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

Correct AnswerverifiedShow Answer

Wealth is redistributed from debtors to creditors when inflation is

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Correct AnswerverifiedShow Answer

The inflation rate is measured as the percentage change in a price index.

Correct AnswerverifiedShow Answer

Suppose that velocity rises while the money supply stays the same. It follows that

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is influenced by monetary factors?

Correct AnswerverifiedShow Answer

Which of the following is not implied by the quantity equation?

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, then 1/P

Correct AnswerverifiedShow Answer

Which of the following is not correct?

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If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

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Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically, the government in countries t...View AnswerShow Answer

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Typically, the government in countries t...
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