Question 1

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

Accepted Answer

A)  income 
B)  expectations 
C)  liquidity 
D)  real 
A)  income 
B)  expectations 
C)  liquidity 
D)  real C

Question 2

In the equation of exchange,GDP divided by the money supply is equal to

Accepted Answer

A)  M. 
B)  V. 
C)  P. 
D)  Q. 
A)  M. 
B)  V. 
C)  P. 
D)  Q. B

Question 3

Can a one-time increase in the supply of money cause one-shot inflation?

Accepted Answer

A)  Yes, because it shifts the aggregate demand curve rightward. 
B)  No, because it cannot shift the aggregate demand curve rightward. 
C)  Yes, because it shifts the aggregate demand curve leftward. 
D)  Yes, because it shifts the aggregate supply curve rightward. 
A)  Yes, because it shifts the aggregate demand curve rightward. 
B)  No, because it cannot shift the aggregate demand curve rightward. 
C)  Yes, because it shifts the aggregate demand curve leftward. 
D)  Yes, because it shifts the aggregate supply curve rightward. A

Question 4

According to monetarists,changes in velocity can

Accepted Answer

A)  lower GDP 
B)  raise GDP 
C)  shift the SRAS, but not the LRAS 
D)  a and b 
E)  a, b and c 
A)  lower GDP 
B)  raise GDP 
C)  shift the SRAS, but not the LRAS 
D)  a and b 
E)  a, b and c

Question 5

The chief difference between one-shot inflation and continued inflation is that

Accepted Answer

A)  Keynesians believe all inflations are one-shot inflations and monetarists believe all inflations are continued inflations. 
B)  one-shot inflation is long and continued inflation is short. 
C)  one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level. 
D)  monetarists believe all inflations are one-shot inflations and Keynesians believe all inflations are continued inflations. 
A)  Keynesians believe all inflations are one-shot inflations and monetarists believe all inflations are continued inflations. 
B)  one-shot inflation is long and continued inflation is short. 
C)  one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level. 
D)  monetarists believe all inflations are one-shot inflations and Keynesians believe all inflations are continued inflations.

Question 6

According to monetarists,if the economy is initially in long-run equilibrium,an increase in the money supply will __________ the price level and Real GDP in the short run,and will __________ only __________ in the long run.

Accepted Answer

A)  lower; lower; the price level 
B)  raise; raise; Real GDP 
C)  raise; lower; Real GDP 
D)  raise; raise; the price level 
E)  raise; raise; the unemployment rate 
A)  lower; lower; the price level 
B)  raise; raise; Real GDP 
C)  raise; lower; Real GDP 
D)  raise; raise; the price level 
E)  raise; raise; the unemployment rate

Question 7

A monetarist would argue that

Accepted Answer

A)  small changes in M could be offset by changes in V and not cause changes in P. 
B)  changes in M in the short run can cause Real GDP to fall. 
C)  prices and wages are flexible. 
D)  b and c 
E)  a, b and c 
A)  small changes in M could be offset by changes in V and not cause changes in P. 
B)  changes in M in the short run can cause Real GDP to fall. 
C)  prices and wages are flexible. 
D)  b and c 
E)  a, b and c

Question 8

Continued inflation occurs

Accepted Answer

A)  if there is a sustained increase in the price level. 
B)  only if there is a sustained increase in the price of every good and service. 
C)  only if there is a sustained increase in the price of every good and service by the same dollar amount. 
D)  only if there is a sustained increase in the price of every good and service by the same percentage. 
A)  if there is a sustained increase in the price level. 
B)  only if there is a sustained increase in the price of every good and service. 
C)  only if there is a sustained increase in the price of every good and service by the same dollar amount. 
D)  only if there is a sustained increase in the price of every good and service by the same percentage.

Question 9

According to the simple quantity theory of money,an increase in the money supply will shift the __________ curve to the right and raise __________.

Accepted Answer

A)  AD; Real GDP 
B)  AS; the price level 
C)  AD; the price level 
D)  AS; Real GDP 
E)  none of the above 
A)  AD; Real GDP 
B)  AS; the price level 
C)  AD; the price level 
D)  AS; Real GDP 
E)  none of the above

Question 10

What is the only factor that can continually increase in such a way as to bring about continued increases in aggregate demand,and thus bring about continued inflation? Give two reasons why government purchases cannot continually increase,and so cannot be the cause of continued inflation.

Accepted Answer

The only factor that can continually inc

Question 11

Exhibit 14-1
  
-Refer to Exhibit 14-1.A continued increase in the price of oil,combined with Fed attempts to respond to these oil shocks by increasing aggregate demand,is likely to take the economy along which of the following paths?

Accepted Answer

A)  A-E-B-H-C 
B)  A-E-G-I-C 
C)  A-D-B-E-A 
D)  A-D-B-H-C 
E)  A-E-B-I-C 
A)  A-E-B-H-C 
B)  A-E-G-I-C 
C)  A-D-B-E-A 
D)  A-D-B-H-C 
E)  A-E-B-I-C

Question 12

Which of the following statements is true?

Accepted Answer

A)  Velocity equals the money supply. 
B)  GDP is larger than the money supply if velocity is greater than 1. 
C)  The money supply must be equal to GDP. 
D)  GDP is always twice the money supply. 
A)  Velocity equals the money supply. 
B)  GDP is larger than the money supply if velocity is greater than 1. 
C)  The money supply must be equal to GDP. 
D)  GDP is always twice the money supply.

Question 13

Velocity equals GDP __________ the money supply.

Accepted Answer

A)  plus 
B)  multiplied by 
C)  divided by 
D)  minus 
A)  plus 
B)  multiplied by 
C)  divided by 
D)  minus

Question 14

Exhibit 14-1
  
-Refer to Exhibit 14-1.A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

Accepted Answer

A)  A-E-B-H-C 
B)  A-D-B-I-C 
C)  A-D-F-H-C 
D)  A-D-B-H-C 
E)  A-E-B-I-C 
A)  A-E-B-H-C 
B)  A-D-B-I-C 
C)  A-D-F-H-C 
D)  A-D-B-H-C 
E)  A-E-B-I-C

Question 15

If the money supply is $400,velocity is 6,then in the equation of exchange,PQ is

Accepted Answer

A)  $67. 
B)  $1,500. 
C)  $2,400. 
D)  $406. 
A)  $67. 
B)  $1,500. 
C)  $2,400. 
D)  $406.

Question 16

Which of the following statements is true?

Accepted Answer

A)  Nominal interest rate = real interest rate - expected inflation rate. 
B)  Nominal interest rate = real interest rate + expected inflation rate. 
C)  Real interest rate = nominal interest rate + expected inflation rate. 
D)  Expected inflation rate = nominal interest rate + real interest rate. 
E)  Expected inflation rate = real interest rate - nominal interest rate. 
A)  Nominal interest rate = real interest rate - expected inflation rate. 
B)  Nominal interest rate = real interest rate + expected inflation rate. 
C)  Real interest rate = nominal interest rate + expected inflation rate. 
D)  Expected inflation rate = nominal interest rate + real interest rate. 
E)  Expected inflation rate = real interest rate - nominal interest rate.

Question 17

Suppose the economy starts off producing Natural Real GDP.Next,aggregate demand rises,ceteris paribus.As a result,the price level rises in the short run.In the long run,when the economy has moved back to producing Natural Real GDP,the price level will be

Accepted Answer

A)  higher than it was in short-run equilibrium. 
B)  lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased). 
C)  lower than it was originally (before aggregate demand increased). 
D)  equal to what it was originally (before aggregate demand increased). 
A)  higher than it was in short-run equilibrium. 
B)  lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased). 
C)  lower than it was originally (before aggregate demand increased). 
D)  equal to what it was originally (before aggregate demand increased).

Question 18

Some economists argue that increases in government spending are not a likely source of continued inflation because

Accepted Answer

A)  increases in government spending cause reductions in other spending components. 
B)  government spending is not created by the Fed. 
C)  increases in government spending can be financed by money creation. 
D)  a and b 
E)  a and c 
A)  increases in government spending cause reductions in other spending components. 
B)  government spending is not created by the Fed. 
C)  increases in government spending can be financed by money creation. 
D)  a and b 
E)  a and c

Question 19

One-shot inflation can be caused by

Accepted Answer

A)  increases in aggregate demand only. 
B)  decreases in aggregate supply only. 
C)  either increases in aggregate demand or decreases in aggregate supply. 
D)  neither increases in aggregate demand nor decreases in aggregate supply. 
A)  increases in aggregate demand only. 
B)  decreases in aggregate supply only. 
C)  either increases in aggregate demand or decreases in aggregate supply. 
D)  neither increases in aggregate demand nor decreases in aggregate supply.

Question 20

The economy is initially in long-run equilibrium.The AD curve shifts to the right and the price level rises.Assuming that the economy is self-regulating,the SRAS curve will shift to the left and the price level will rise even further.If the price level now remains constant,what have we witnessed?

Accepted Answer

A)  one-shot demand-induced inflation 
B)  continued demand-induced inflation 
C)  one-shot supply-induced inflation 
D)  one-shot inflation that was partly demand-induced and partly supply-induced 
E)  continued supply-side inflation 
A)  one-shot demand-induced inflation 
B)  continued demand-induced inflation 
C)  one-shot supply-induced inflation 
D)  one-shot inflation that was partly demand-induced and partly supply-induced 
E)  continued supply-side inflation

Exam 14: Money and the Economy

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

In the equation of exchange,GDP divided by the money supply is equal to

Can a one-time increase in the supply of money cause one-shot inflation?

According to monetarists,changes in velocity can

The chief difference between one-shot inflation and continued inflation is that

According to monetarists,if the economy is initially in long-run equilibrium,an increase in the money supply will __________ the price level and Real GDP in the short run,and will __________ only __________ in the long run.

A monetarist would argue that

Continued inflation occurs

According to the simple quantity theory of money,an increase in the money supply will shift the __________ curve to the right and raise __________.

What is the only factor that can continually increase in such a way as to bring about continued increases in aggregate demand,and thus bring about continued inflation? Give two reasons why government purchases cannot continually increase,and so cannot be the cause of continued inflation.

Exhibit 14-1 -Refer to Exhibit 14-1.A continued increase in the price of oil,combined with Fed attempts to respond to these oil shocks by increasing aggregate demand,is likely to take the economy along which of the following paths?

Which of the following statements is true?

Velocity equals GDP __________ the money supply.

Exhibit 14-1 -Refer to Exhibit 14-1.A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

If the money supply is $400,velocity is 6,then in the equation of exchange,PQ is

Which of the following statements is true?

Suppose the economy starts off producing Natural Real GDP.Next,aggregate demand rises,ceteris paribus.As a result,the price level rises in the short run.In the long run,when the economy has moved back to producing Natural Real GDP,the price level will be

Some economists argue that increases in government spending are not a likely source of continued inflation because

One-shot inflation can be caused by

The economy is initially in long-run equilibrium.The AD curve shifts to the right and the price level rises.Assuming that the economy is self-regulating,the SRAS curve will shift to the left and the price level will rise even further.If the price level now remains constant,what have we witnessed?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

According to monetarists,if the economy is initially in long-run equilibrium,an increase in the money supply will the price level and Real GDP in the short run,and will only __ in the long run.

According to the simple quantity theory of money,an increase in the money supply will shift the curve to the right and raise .