Question 1

Figure 11-1  
-Refer to Figure 11-1. If the money supply is MS2 and the value of money is 2, which relationship holds?

Accepted Answer

A)  The value of money is less than its equilibrium level. 
B)  The price level is higher than its equilibrium level. 
C)  The money demand is greater than the money supply. 
D)  The money supply is greater than money demand. 
A)  The value of money is less than its equilibrium level. 
B)  The price level is higher than its equilibrium level. 
C)  The money demand is greater than the money supply. 
D)  The money supply is greater than money demand.

Question 2

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Accepted Answer

A)  It creates an excess supply of money, causing people to spend more. 
B)  It creates an excess supply of money, causing people to spend less. 
C)  It creates an excess demand for money, causing people to spend more. 
D)  It creates an excess demand for money, causing people to spend less. 
A)  It creates an excess supply of money, causing people to spend more. 
B)  It creates an excess supply of money, causing people to spend less. 
C)  It creates an excess demand for money, causing people to spend more. 
D)  It creates an excess demand for money, causing people to spend less.

Question 3

Which statement best describes the inflation tax?

Accepted Answer

A)  It is an income tax. 
B)  It is a sales tax. 
C)  It is the revenue created when the government prints money. 
D)  It is the revenue created when inflation is low. 
A)  It is an income tax. 
B)  It is a sales tax. 
C)  It is the revenue created when the government prints money. 
D)  It is the revenue created when inflation is low.

Question 4

The quantity theory 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 5

According to the quantity equation, if P = 20, Y = 100, and M = 250, what is V?

Accepted Answer

A)  5 
B)  8 
C)  62.5 
D)  130 
A)  5 
B)  8 
C)  62.5 
D)  130

Question 6

What are the costs of inflation?

Accepted Answer

The costs of inflation include "shoeleat

Question 7

According to the classical dichotomy, what is influenced by monetary factors?

Accepted Answer

A)  production 
B)  the interest rate adjusted for inflation 
C)  the current-dollar wage 
D)  the constant-dollar GDP 
A)  production 
B)  the interest rate adjusted for inflation 
C)  the current-dollar wage 
D)  the constant-dollar GDP

Question 8

When prices are falling, what term do economists use?

Accepted Answer

A)  disinflation 
B)  deflation 
C)  contraction 
D)  inflation 
A)  disinflation 
B)  deflation 
C)  contraction 
D)  inflation

Question 9

Velocity in the country of Aquilonia is always stable. In 2018, the money supply was $100 billion, nominal GDP was $500 billion, and the real interest rate was 3 percent. In 2019, the money supply was $105 billion, and real GDP did not change from its level in 2018. What was the approximate nominal interest rate in 2019?

Accepted Answer

A)  3 percent 
B)  5 percent 
C)  8 percent 
D)  11 percent 
A)  3 percent 
B)  5 percent 
C)  8 percent 
D)  11 percent

Question 10

In the 1990s, Canadian prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following does an increase in the money supply growth rate increase?

Accepted Answer

A)  inflation, nominal interest rates, and real interest rates 
B)  inflation and nominal interest rates, but it does not change real interest rates 
C)  inflation and real interest rates, but it does not change nominal interest rates 
D)  nominal and real interest rates, but it does not change inflation 
A)  inflation, nominal interest rates, and real interest rates 
B)  inflation and nominal interest rates, but it does not change real interest rates 
C)  inflation and real interest rates, but it does not change nominal interest rates 
D)  nominal and real interest rates, but it does not change inflation

Question 12

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Accepted Answer

A)  Evidence shows that money growth and inflation moved together, which supports the quantity theory. 
B)  Evidence shows that money growth and inflation moved together, which does not support the quantity theory. 
C)  Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory. 
D)  Evidence shows that money growth and inflation did not move closely with each other, which does not support the quantity theory. 
A)  Evidence shows that money growth and inflation moved together, which supports the quantity theory. 
B)  Evidence shows that money growth and inflation moved together, which does not support the quantity theory. 
C)  Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory. 
D)  Evidence shows that money growth and inflation did not move closely with each other, which does not support the quantity theory.

Question 13

According to the quantity equation, if P = 3 and Y = 400, which of the following pairs could M and V be?

Accepted Answer

A)  100, 3 
B)  200, 2 
C)  300, 5 
D)  600, 2 
A)  100, 3 
B)  200, 2 
C)  300, 5 
D)  600, 2

Question 14

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Accepted Answer

A)  1.8 percent 
B)  2.4 percent 
C)  3.2 percent 
D)  4.4 percent 
A)  1.8 percent 
B)  2.4 percent 
C)  3.2 percent 
D)  4.4 percent

Question 15

Velocity in the country of Nanoland is always stable. In 2018, the money supply was $200 billion and the GDP price deflator was four times as high as it was in the base year. In 2019, the money supply increased to $240 billion, the price level increased by 15 percent, and nominal GDP equalled $1200 billion. By how much did real GDP increase between 2018 and 2019?

Accepted Answer

A)  0.45 percent 
B)  4.35 percent 
C)  7.45 percent 
D)  20 percent 
A)  0.45 percent 
B)  4.35 percent 
C)  7.45 percent 
D)  20 percent

Question 16

Which statement best characterizes the effects of monetary policy?

Accepted Answer

A)  Monetary policy is neutral in both the short run and the long run; therefore, it does not affect real variables. 
B)  Monetary policy is neutral in the long run, but it may have effects on real variables in the short run. 
C)  Monetary policy has profound effects on real variables in both the short run and the long run. 
D)  Monetary policy has profound effects on real variables in the long run, but is neutral in the short run. 
A)  Monetary policy is neutral in both the short run and the long run; therefore, it does not affect real variables. 
B)  Monetary policy is neutral in the long run, but it may have effects on real variables in the short run. 
C)  Monetary policy has profound effects on real variables in both the short run and the long run. 
D)  Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.

Question 17

What does real GDP measure?

Accepted Answer

A)  the total quantity of final goods and services produced 
B)  the dollar value of the economy's output of final goods and services 
C)  the total income received from producing final goods and services at current prices 
D)  the change in prices from the base year to current year 
A)  the total quantity of final goods and services produced 
B)  the dollar value of the economy's output of final goods and services 
C)  the total income received from producing final goods and services at current prices 
D)  the change in prices from the base year to current year

Question 18

What does the shoe leather cost of inflation refer to?

Accepted Answer

A)  the fall in real income associated with inflation 
B)  the time spent searching for low prices when inflation rises 
C)  the waste of resources used to maintain lower money holdings 
D)  the increased cost to the government of printing more money 
A)  the fall in real income associated with inflation 
B)  the time spent searching for low prices when inflation rises 
C)  the waste of resources used to maintain lower money holdings 
D)  the increased cost to the government of printing more money

Question 19

Which inflation cost matters even if actual inflation and expected inflation are the same?

Accepted Answer

A)  production costs 
B)  losses in real income 
C)  losses in tax revenue 
D)  menu costs 
A)  production costs 
B)  losses in real income 
C)  losses in tax revenue 
D)  menu costs

Question 20

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Figure 11-1 -Refer to Figure 11-1. If the money supply is MS₂ and the value of money is 2, which relationship holds?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Which statement best describes the inflation tax?

The quantity theory 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.

According to the quantity equation, if P = 20, Y = 100, and M = 250, what is V?

What are the costs of inflation?

According to the classical dichotomy, what is influenced by monetary factors?

When prices are falling, what term do economists use?

In the 1990s, Canadian prices rose at about the same rate as in the 1970s.

Which of the following does an increase in the money supply growth rate increase?

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

According to the quantity equation, if P = 3 and Y = 400, which of the following pairs could M and V be?

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Which statement best characterizes the effects of monetary policy?

What does real GDP measure?

What does the shoe leather cost of inflation refer to?

Which inflation cost matters even if actual inflation and expected inflation are the same?

The source of all four classic hyperinflations was high rates of money growth.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Exam 11: Money Growth and Inflation

Figure 11-1 -Refer to Figure 11-1. If the money supply is MS2 and the value of money is 2, which relationship holds?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Which statement best describes the inflation tax?

The quantity theory 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.

According to the quantity equation, if P = 20, Y = 100, and M = 250, what is V?

What are the costs of inflation?

According to the classical dichotomy, what is influenced by monetary factors?

When prices are falling, what term do economists use?

In the 1990s, Canadian prices rose at about the same rate as in the 1970s.

Which of the following does an increase in the money supply growth rate increase?

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

According to the quantity equation, if P = 3 and Y = 400, which of the following pairs could M and V be?

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Which statement best characterizes the effects of monetary policy?

What does real GDP measure?

What does the shoe leather cost of inflation refer to?

Which inflation cost matters even if actual inflation and expected inflation are the same?

The source of all four classic hyperinflations was high rates of money growth.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Figure 11-1 -Refer to Figure 11-1. If the money supply is MS₂ and the value of money is 2, which relationship holds?