Question 1

One-shot inflation can originate

Accepted Answer

A)  only on the demand side of the economy. 
B)  only on the supply side of the economy. 
C)  on the demand side or the supply side of the economy. 
D)  on neither the demand side nor the supply side of the economy. 
A)  only on the demand side of the economy. 
B)  only on the supply side of the economy. 
C)  on the demand side or the supply side of the economy. 
D)  on neither the demand side nor the supply side of the economy.

Question 2

In the simple quantity theory of money,Real GDP and velocity are assumed to be constant.

Accepted Answer

A) True 
 B)False

Question 3

Suppose we are at a long-run equilibrium point in an AD-AS model.Then the money supply falls.In the short run,is there any difference between what happens in the simple quantity theory of money (SQTM)version and the monetarist version of the model?

Accepted Answer

A)  There is no difference. 
B)  In the SQTM version, the price level falls; in the monetarist version, it does not. 
C)  In the monetarist version, Real GDP falls; in the SQTM version, it does not. 
D)  In the monetarist version, the price level falls; in the SQTM version, it does not. 
E)  In the SQTM version, Real GDP falls; in the monetarist version, it does not. 
A)  There is no difference. 
B)  In the SQTM version, the price level falls; in the monetarist version, it does not. 
C)  In the monetarist version, Real GDP falls; in the SQTM version, it does not. 
D)  In the monetarist version, the price level falls; in the SQTM version, it does not. 
E)  In the SQTM version, Real GDP falls; in the monetarist version, it does not.

Question 4

If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent,the real interest rate is

Accepted Answer

A)  3 percent. 
B)  5 percent. 
C)  4 percent. 
D)  1.50 percent. 
E)  0.25 percent. 
A)  3 percent. 
B)  5 percent. 
C)  4 percent. 
D)  1.50 percent. 
E)  0.25 percent.

Question 5

The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.

Accepted Answer

A)  expectations 
B)  Fisher 
C)  liquidity 
D)  income 
E)  a or b 
A)  expectations 
B)  Fisher 
C)  liquidity 
D)  income 
E)  a or b

Question 6

In the equation of exchange,the money supply multiplied by velocity equals

Accepted Answer

A)  GDP. 
B)  the price level. 
C)  the quantity of goods produced. 
D)  the average number of times that a dollar is used to purchase a final good or service. 
A)  GDP. 
B)  the price level. 
C)  the quantity of goods produced. 
D)  the average number of times that a dollar is used to purchase a final good or service.

Question 7

Suppose the economy starts off producing Natural Real GDP.Next,aggregate supply rises,ceteris paribus.As a result,the price level falls 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 supply rose). 
C)  lower than it was originally (before aggregate supply rose). 
D)  equal to what it was originally (before aggregate supply rose). 
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 supply rose). 
C)  lower than it was originally (before aggregate supply rose). 
D)  equal to what it was originally (before aggregate supply rose).

Question 8

In seeking to explain what determines GDP,monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

Accepted Answer

A) True 
 B)False

Question 9

Real-world continued inflation is probably a result of continued

Accepted Answer

A)  increases in aggregate demand. 
B)  decreases in aggregate demand. 
C)  increases in aggregate supply. 
D)  decreases in aggregate supply. 
A)  increases in aggregate demand. 
B)  decreases in aggregate demand. 
C)  increases in aggregate supply. 
D)  decreases in aggregate supply.

Question 10

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

Accepted Answer

A)  total 
B)  average 
C)  marginal 
D)  statistical 
A)  total 
B)  average 
C)  marginal 
D)  statistical

Question 11

According to the simple quantity theory of money in the AD-AS framework,the AD curve is

Accepted Answer

A)  vertical. 
B)  downward sloping. 
C)  horizontal. 
D)  upward sloping. 
A)  vertical. 
B)  downward sloping. 
C)  horizontal. 
D)  upward sloping.

Question 12

The change in the interest rate brought on by a change in Real GDP is referred to as the __________ effect.

Accepted Answer

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

Question 13

The money supply falls from $1,200 billion to $1,160 billion.According to the simple quantity theory of money,the price level will decline by __________ percent.

Accepted Answer

A)  3.33 
B)  4.68 
C)  5.09 
D)  7.65 
A)  3.33 
B)  4.68 
C)  5.09 
D)  7.65

Question 14

If the money supply is $3,000,velocity is 4 and the price level is $2,then Real GDP is _____________ units of output.If the money supply doubled over a short time period to $6,000,the simple quantity theory of money would predict that ______________________.

Accepted Answer

A)  3,000; the price level would double 
B)  6,000; Real GDP would double 
C)  625; the price level would be cut in half 
D)  6,000; the price level would double 
A)  3,000; the price level would double 
B)  6,000; Real GDP would double 
C)  625; the price level would be cut in half 
D)  6,000; the price level would double

Question 15

In the monetarist version of the AD-AS framework,starting from long-run equilibrium,a decrease in velocity produces

Accepted Answer

A)  no change in Real GDP in the short run or the long run. 
B)  a rise in Real GDP in both the short run and the long run. 
C)  a fall in Real GDP in both the short run and the long run. 
D)  a fall in Real GDP in the short run, but not in the long run. 
E)  no change in Real GDP in the short run, but a rise in the long run. 
A)  no change in Real GDP in the short run or the long run. 
B)  a rise in Real GDP in both the short run and the long run. 
C)  a fall in Real GDP in both the short run and the long run. 
D)  a fall in Real GDP in the short run, but not in the long run. 
E)  no change in Real GDP in the short run, but a rise in the long run.

Question 16

Which of the following statements is false?

Accepted Answer

A)  The exchange equation assumes that velocity is constant. 
B)  Velocity is the average number of times a dollar is spent to buy final goods and services in a year. 
C)  The simple quantity theory of money predicts that changes in the money supply lead to strictly proportional changes in the price level. 
D)  In the simple quantity theory of money the aggregate supply curve is vertical. 
A)  The exchange equation assumes that velocity is constant. 
B)  Velocity is the average number of times a dollar is spent to buy final goods and services in a year. 
C)  The simple quantity theory of money predicts that changes in the money supply lead to strictly proportional changes in the price level. 
D)  In the simple quantity theory of money the aggregate supply curve is vertical.

Question 17

The simple quantity theory of money predicts that the larger the percentage change in the money supply,the larger the percentage change in Real GDP.

Accepted Answer

A) True 
 B)False

Question 18

According to the equation of exchange,if Real GDP is $3 trillion and the money supply is $0.5 trillion,then velocity

Accepted Answer

A)  must be 6. 
B)  must be 1/6. 
C)  must be 4 trillion. 
D)  must be 1/4 trillion. 
E)  cannot be determined without knowing what the price level is. 
A)  must be 6. 
B)  must be 1/6. 
C)  must be 4 trillion. 
D)  must be 1/4 trillion. 
E)  cannot be determined without knowing what the price level is.

Question 19

Monetarists believe that an increase in the money supply will raise both Real GDP and the price level in the short run,and will only raise Real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 20

Between 1890 and 1914,the gold stock of the world doubled,but world prices fell during this time.

Accepted Answer

A) True 
 B)False

Exam 14: Money and the Economy

One-shot inflation can originate

In the simple quantity theory of money,Real GDP and velocity are assumed to be constant.

Suppose we are at a long-run equilibrium point in an AD-AS model.Then the money supply falls.In the short run,is there any difference between what happens in the simple quantity theory of money (SQTM)version and the monetarist version of the model?

If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent,the real interest rate is

The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.

In the equation of exchange,the money supply multiplied by velocity equals

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

In seeking to explain what determines GDP,monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

Real-world continued inflation is probably a result of continued

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

According to the simple quantity theory of money in the AD-AS framework,the AD curve is

The change in the interest rate brought on by a change in Real GDP is referred to as the __________ effect.

The money supply falls from $1,200 billion to $1,160 billion.According to the simple quantity theory of money,the price level will decline by __________ percent.

If the money supply is $3,000,velocity is 4 and the price level is $2,then Real GDP is _____________ units of output.If the money supply doubled over a short time period to $6,000,the simple quantity theory of money would predict that ______________________.

In the monetarist version of the AD-AS framework,starting from long-run equilibrium,a decrease in velocity produces

Which of the following statements is false?

The simple quantity theory of money predicts that the larger the percentage change in the money supply,the larger the percentage change in Real GDP.

According to the equation of exchange,if Real GDP is $3 trillion and the money supply is $0.5 trillion,then velocity

Monetarists believe that an increase in the money supply will raise both Real GDP and the price level in the short run,and will only raise Real GDP in the long run.

Between 1890 and 1914,the gold stock of the world doubled,but world prices fell during this time.

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

If the money supply is $3,000,velocity is 4 and the price level is $2,then Real GDP is _ units of output.If the money supply doubled over a short time period to $6,000,the simple quantity theory of money would predict that __________.