Exam 11: Money Growth and Inflation

Assuming that V is constant, what could result from an increase in M in the quantity equation?

Last year, Tealandia produced 300 bags of green tea, which sold at 10 units each of Tealandia's currency-the leaf. Tealandia's money supply was 150. What was the velocity of money in Tealandia?

Cole puts money into an account. One year later, he sees that he has 4 percent more dollars and that his money will buy 3 percent more goods. Which of the following is consistent with these facts?

Suppose that the Government of Canada unexpectedly decided to pay off its debt by printing new money. What would happen?

How is the supply of money determined?

Velocity in the country of Coruba is always stable. In 2018, the money supply was $100 billion and real GDP was $300 billion. In 2019, the money supply increased by 10 percent, real GDP increased by 5 percent, and nominal GDP equalled $660 billion. By how much did the price level increase between 2018 and 2019?

What do economists think about high and moderate inflation?

When the price level falls, what happens to the number of dollars needed to buy a representative basket of goods?

Refer to the following: a. The central bank of the Republic of Moldova needs to determine by how much to increase the money supply next year, if they estimate an increase in the overall economic activity (real GDP) of 2.5 percent and have a target inflation rate of 4 percent. The velocity of money has been observed to be constant over the past many years. If you were a consultant to the government, what would your advice be? b. Next year, the National Bank of Moldova wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply?

Suppose Geoff considers borrowing $100 from Tracey at a 10 percent interest rate. They both think that a 6 percent real interest rate would be fair. a) What was the inflation rate they both expected? b) If the inflation rate turned out to be 7 percent, how much was the real interest rate? Who gained and who lost from this transaction, and how much because of unexpected inflation? c) If there was an interest tax of 30 percent, what is the after-tax real interest rate, with the inflation rate of 8 percent?

What does the evidence gained from studying hyperinflation indicate?

In the 14th century, the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold, which was in use as a medium of exchange. How would we predict this increase in gold would do to the price level and value of gold in Cairo?

According to the classical dichotomy, when the money supply doubles, what also double(s)?

Monica buys a bond for $750 and then sells it later for $950. What type of gain is Monica's experience?

According to the classical dichotomy, what changes nominal variables? What changes real variables?

What does the classical theory of inflation try to explain?

What does the quantity theory of money try to explain?

Which statement best characterizes the effect of inflation?

You put money in an account and earn a real interest rate of 8 percent. Inflation is 2 percent, and your marginal tax rate is 30 percent. What is your after-tax real interest rate?

Based on the quantity equation, if M = 120, V = 4, and Y = 160, what is P?