Question 1

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the __________ curve shifts to the __________.

Accepted Answer

A)  AD; left 
B)  AD; right 
C)  AS; left 
D)  AS; right 
A)  AD; left 
B)  AD; right 
C)  AS; left 
D)  AS; right

Question 2

Which of the following statements is true?

Accepted Answer

A)  To a large degree, Keynesians focus on the spending components of total expenditures when they seek to understand what determines GDP; monetarists focus on the money supply and velocity when their objective is the same. 
B)  To a large degree, monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; Keynesians focus on the money supply and velocity when their objective is the same. 
C)  Both Keynesians and monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; neither group focuses on the money supply and velocity. 
D)  Neither Keynesians nor monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; both focus on the money supply and velocity. 
A)  To a large degree, Keynesians focus on the spending components of total expenditures when they seek to understand what determines GDP; monetarists focus on the money supply and velocity when their objective is the same. 
B)  To a large degree, monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; Keynesians focus on the money supply and velocity when their objective is the same. 
C)  Both Keynesians and monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; neither group focuses on the money supply and velocity. 
D)  Neither Keynesians nor monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; both focus on the money supply and velocity.

Question 3

Both the monetarist view of the economy and the simple quantity theory of money hold that velocity is constant.

Accepted Answer

A) True 
 B)False

Question 4

In the equation of exchange,the average number of times a dollar is used to purchase a final good or service is the __________ of money.

Accepted Answer

A)  turnover 
B)  elasticity 
C)  velocity 
D)  transfer 
A)  turnover 
B)  elasticity 
C)  velocity 
D)  transfer

Question 5

Monetarists believe that velocity

Accepted Answer

A)  is constant. 
B)  changes erratically. 
C)  and the money supply always have an inverse relationship. 
D)  changes in a way that can be understood and predicted. 
A)  is constant. 
B)  changes erratically. 
C)  and the money supply always have an inverse relationship. 
D)  changes in a way that can be understood and predicted.

Question 6

Real estate in San Francisco that sold for $16 before gold was discovered in California was valued at $4,500 eighteen months later,as a result of the gold rush.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 14-2
  
-Refer to Exhibit 14-2.The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7.What explains this?

Accepted Answer

A)  an initial decrease in SRAS, followed by alternating rises in AD and decreases in SRAS 
B)  continued increases in AD 
C)  continued decreases in SRAS 
D)  an initial rise in the price level, followed by a decrease in SRAS, and then alternating increases in AD and decreases in SRAS 
E)  continued increases in SRAS 
A)  an initial decrease in SRAS, followed by alternating rises in AD and decreases in SRAS 
B)  continued increases in AD 
C)  continued decreases in SRAS 
D)  an initial rise in the price level, followed by a decrease in SRAS, and then alternating increases in AD and decreases in SRAS 
E)  continued increases in SRAS

Question 8

The expectations effect is the

Accepted Answer

A)  increase in the interest rate brought on by an expected increase in Real GDP. 
B)  increase in the interest rate due to a higher expected inflation rate. 
C)  decrease in the interest rate due to an expected increase in the supply of loanable funds. 
D)  idea that people form their expectations of inflation by considering all available information about past, present, and future inflation. 
E)  idea that people form their expectations of inflation by considering only information about past inflation experience. 
A)  increase in the interest rate brought on by an expected increase in Real GDP. 
B)  increase in the interest rate due to a higher expected inflation rate. 
C)  decrease in the interest rate due to an expected increase in the supply of loanable funds. 
D)  idea that people form their expectations of inflation by considering all available information about past, present, and future inflation. 
E)  idea that people form their expectations of inflation by considering only information about past inflation experience.

Question 9

According to the equation of exchange,if GDP equals $4 trillion and the money supply equals $1 trillion,the velocity of money

Accepted Answer

A)  must be 0.25. 
B)  must be 4. 
C)  must be 0.25 trillion. 
D)  must be 4 trillion. 
E)  cannot be determined without knowing what the price level is. 
A)  must be 0.25. 
B)  must be 4. 
C)  must be 0.25 trillion. 
D)  must be 4 trillion. 
E)  cannot be determined without knowing what the price level is.

Question 10

Which of the following variables is capable of continually increasing aggregate demand with no offsetting influence on any of the components of total spending?

Accepted Answer

A)  the inflation rate 
B)  the interest rate 
C)  government spending 
D)  the money supply 
E)  the wage rate 
A)  the inflation rate 
B)  the interest rate 
C)  government spending 
D)  the money supply 
E)  the wage rate

Question 11

If GDP is $9,000 billion and the money supply is $1,800 billion,velocity is approximately

Accepted Answer

A)  0.20. 
B)  6.00. 
C)  4.15. 
D)  5.00. 
E)  There is not enough information provided to answer this question. 
A)  0.20. 
B)  6.00. 
C)  4.15. 
D)  5.00. 
E)  There is not enough information provided to answer this question.

Question 12

The true cost of borrowing is the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 13

MV in the equation of exchange is also defined as

Accepted Answer

A)  national income. 
B)  total expenditures. 
C)  personal income. 
D)  Real GDP. 
A)  national income. 
B)  total expenditures. 
C)  personal income. 
D)  Real GDP.

Question 14

According to Milton Friedman,continued inflation is always and everywhere

Accepted Answer

A)  a supply-side phenomenon. 
B)  caused by continued decreases in aggregate supply. 
C)  caused by continued increases in the budget deficit. 
D)  a monetary phenomenon. 
E)  none of the above 
A)  a supply-side phenomenon. 
B)  caused by continued decreases in aggregate supply. 
C)  caused by continued increases in the budget deficit. 
D)  a monetary phenomenon. 
E)  none of the above

Question 15

Explain how a change in the money supply can affect the following in the short run:a.
The supply of loanable funds b.
Real GDP c.
The price level d.
The expected inflation rate

Accepted Answer

a.
As the Fed increases the money supply

Question 16

If GDP is $16,000 and velocity is 4,the money supply is

Accepted Answer

A)  $27,000. 
B)  $12,000. 
C)  $4,000. 
D)  $3,000. 
E)  There is not enough information provided to answer this question. 
A)  $27,000. 
B)  $12,000. 
C)  $4,000. 
D)  $3,000. 
E)  There is not enough information provided to answer this question.

Question 17

List and describe the four positions held by monetarists that help to explain the monetarists view of the economy.

Accepted Answer

Monetarists assume that velocity changes

Question 18

If Real GDP is $8,000,the money supply is $3,100,and velocity is 4,then the price level is

Accepted Answer

A)  1.92. 
B)  4.69. 
C)  1.55. 
D)  3.33. 
A)  1.92. 
B)  4.69. 
C)  1.55. 
D)  3.33.

Question 19

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Accepted Answer

A) True 
 B)False

Question 20

When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was referring to

Accepted Answer

A)  one-shot inflation. 
B)  continued inflation. 
C)  a and b 
D)  neither a nor b 
A)  one-shot inflation. 
B)  continued inflation. 
C)  a and b 
D)  neither a nor b

Exam 14: Money and the Economy

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the __________ curve shifts to the __________.

Which of the following statements is true?

Both the monetarist view of the economy and the simple quantity theory of money hold that velocity is constant.

In the equation of exchange,the average number of times a dollar is used to purchase a final good or service is the __________ of money.

Monetarists believe that velocity

Real estate in San Francisco that sold for $16 before gold was discovered in California was valued at $4,500 eighteen months later,as a result of the gold rush.

Exhibit 14-2 -Refer to Exhibit 14-2.The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7.What explains this?

The expectations effect is the

According to the equation of exchange,if GDP equals $4 trillion and the money supply equals $1 trillion,the velocity of money

Which of the following variables is capable of continually increasing aggregate demand with no offsetting influence on any of the components of total spending?

If GDP is $9,000 billion and the money supply is $1,800 billion,velocity is approximately

The true cost of borrowing is the nominal interest rate.

MV in the equation of exchange is also defined as

According to Milton Friedman,continued inflation is always and everywhere

Explain how a change in the money supply can affect the following in the short run:a. The supply of loanable funds b. Real GDP c. The price level d. The expected inflation rate

If GDP is $16,000 and velocity is 4,the money supply is

List and describe the four positions held by monetarists that help to explain the monetarists view of the economy.

If Real GDP is $8,000,the money supply is $3,100,and velocity is 4,then the price level is

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was referring to

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

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Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

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Classical Macroeconomics and the Self Regulating Economy

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

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According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the curve shifts to the .