Question 1

A rising price level eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 2

If the money supply growth rate permanently increased from 5 percent to 25 percent, what would we expect to happen to inflation?

Accepted Answer

A)  It would increase by more than 20 percentage points. 
B)  It would increase by 20 percentage points. 
C)  It would increase by less than 20 percentage points. 
D)  It would decrease by more than 20 percentage points. 
A)  It would increase by more than 20 percentage points. 
B)  It would increase by 20 percentage points. 
C)  It would increase by less than 20 percentage points. 
D)  It would decrease by more than 20 percentage points.

Question 3

As the price level decreases, what happens to the value of money?

Accepted Answer

A)  It increases, so people want to hold more of it. 
B)  It increases, so people want to hold less of it. 
C)  It decreases, so people want to hold more of it. 
D)  It decreases, so people want to hold less of it. 
A)  It increases, so people want to hold more of it. 
B)  It increases, so people want to hold less of it. 
C)  It decreases, so people want to hold more of it. 
D)  It decreases, so people want to hold less of it.

Question 4

How is velocity computed?

Accepted Answer

A)  (P × Y)/M 
B)  (P × M)/Y 
C)  (Y × V)/P 
D)  (Y × M)/V 
A)  (P × Y)/M 
B)  (P × M)/Y 
C)  (Y × V)/P 
D)  (Y × M)/V

Question 5

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)  The equilibrium value and equilibrium quantity of money both increase. 
B)  The equilibrium value and equilibrium quantity of money both decrease. 
C)  The equilibrium value increases, while the equilibrium quantity of money decreases. 
D)  The equilibrium value decreases, while the equilibrium quantity of money increases. 
A)  The equilibrium value and equilibrium quantity of money both increase. 
B)  The equilibrium value and equilibrium quantity of money both decrease. 
C)  The equilibrium value increases, while the equilibrium quantity of money decreases. 
D)  The equilibrium value decreases, while the equilibrium quantity of money increases.

Question 6

According to the quantity equation, when velocity is stable, which of the following best describes the effects of an increase in the money supply?

Accepted Answer

A)  An increase in the money supply causes a proportional increase in nominal GDP but not in the price level. 
B)  An increase in the money supply causes a proportional increase in the price level and real GDP. 
C)  An increase in the money supply causes a proportional increase in the real GDP but not in the price level. 
D)  An increase in the money supply causes a proportional increase in the price level and nominal GDP. 
A)  An increase in the money supply causes a proportional increase in nominal GDP but not in the price level. 
B)  An increase in the money supply causes a proportional increase in the price level and real GDP. 
C)  An increase in the money supply causes a proportional increase in the real GDP but not in the price level. 
D)  An increase in the money supply causes a proportional increase in the price level and nominal GDP.

Question 7

When the money market is represented 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 increases the price level and the value of money. 
B)  It increases the price level and decreases the value of money. 
C)  It decreases the price level and increases the value of money. 
D)  It decreases the price level and the value of money. 
A)  It increases the price level and the value of money. 
B)  It increases the price level and decreases the value of money. 
C)  It decreases the price level and increases the value of money. 
D)  It decreases the price level and the value of money.

Question 8

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Accepted Answer

A)  the velocity concept 
B)  the Keynesian principle 
C)  the classical dichotomy 
D)  the classical theory of money 
A)  the velocity concept 
B)  the Keynesian principle 
C)  the classical dichotomy 
D)  the classical theory of money

Question 9

Which of the following best defines menu costs?

Accepted Answer

A)  resources used by people to maintain lower money holdings when inflation is high 
B)  costs associated with resource misallocation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation 
D)  the cost of more frequent price changes induced by higher inflation 
A)  resources used by people to maintain lower money holdings when inflation is high 
B)  costs associated with resource misallocation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation 
D)  the cost of more frequent price changes induced by higher inflation

Question 10

In this problem we try to establish a link between the quantity equation, MdV = PY, and the money demand-money supply diagram (Md is the quantity of money demanded). In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded, draw the Md - P curve that is implied by the quantity equation.

Accepted Answer

The quantity equation can be written und

Question 11

If the Bank of Canada decreases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

Accepted Answer

A) True 
 B)False

Question 12

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 13

When do most economists believe the principle of monetary neutrality can be relevant?

Accepted Answer

A)  in both the short run and the long run 
B)  in neither the short run nor the long run 
C)  mostly in the short run 
D)  mostly in the long run 
A)  in both the short run and the long run 
B)  in neither the short run nor the long run 
C)  mostly in the short run 
D)  mostly in the long run

Question 14

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 14 percent, and money growth is 6 percent. Which statement is consistent with these facts?

Accepted Answer

A)  The real interest rate is 6 percent, and nominal wages are rising. 
B)  The real interest rate is 6 percent, and real wages are rising. 
C)  The real interest rate is 8 percent, and nominal wages are rising. 
D)  The real interest rate is 20 percent, and real wages are rising. 
A)  The real interest rate is 6 percent, and nominal wages are rising. 
B)  The real interest rate is 6 percent, and real wages are rising. 
C)  The real interest rate is 8 percent, and nominal wages are rising. 
D)  The real interest rate is 20 percent, and real wages are rising.

Question 15

When a graph of the money market is drawn with the value of money on the vertical axis, what will happen if the value of money is below the equilibrium level?

Accepted Answer

A)  The price level will rise. 
B)  The value of money will rise. 
C)  Money demand will shift left. 
D)  Money demand will shift right. 
A)  The price level will rise. 
B)  The value of money will rise. 
C)  Money demand will shift left. 
D)  Money demand will shift right.

Question 16

If the money supply growth rate permanently increased from 4 percent to 10 percent, what would we expect to happen to the inflation rate and the nominal interest rate?

Accepted Answer

A)  The inflation rate would increase by 6 percent, and the nominal interest rate would increase by less than 10 percent. 
B)  The inflation rate would increase by less than 6 percent, and the nominal interest rate would increase by 10 percent. 
C)  Both the inflation rate and the nominal interest rate would increase by 6 percent. 
D)  Both the inflation rate and the nominal interest rate would increase by less than 6 percent. 
A)  The inflation rate would increase by 6 percent, and the nominal interest rate would increase by less than 10 percent. 
B)  The inflation rate would increase by less than 6 percent, and the nominal interest rate would increase by 10 percent. 
C)  Both the inflation rate and the nominal interest rate would increase by 6 percent. 
D)  Both the inflation rate and the nominal interest rate would increase by less than 6 percent.

Question 17

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 18

Canada has never experienced deflation.

Accepted Answer

A) True 
 B)False

Question 19

Suppose we interpret the quantity theory as a money demand equation. The quantity theory of money equation can be transformed into a growth rate equation: ÄM/M + ÄV/V = ÄP/P + ÄY/Y. If the velocity of money and real GDP are constant, calculate the elasticity of the demand for money with respect to the price level.

Accepted Answer

The elasticity of money with respect to

Question 20

What kind of variables are the interest rates usually published in newspapers such as the Financial Post?

Accepted Answer

A)  classical 
B)  dichotomous 
C)  nominal 
D)  real 
A)  classical 
B)  dichotomous 
C)  nominal 
D)  real

A rising price level eliminates an excess supply of money.

If the money supply growth rate permanently increased from 5 percent to 25 percent, what would we expect to happen to inflation?

As the price level decreases, what happens to the value of money?

How is velocity computed?

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?

According to the quantity equation, when velocity is stable, which of the following best describes the effects of an increase in the money supply?

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

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Which of the following best defines menu costs?

If the Bank of Canada decreases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

When do most economists believe the principle of monetary neutrality can be relevant?

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 14 percent, and money growth is 6 percent. Which statement is consistent with these facts?

When a graph of the money market is drawn with the value of money on the vertical axis, what will happen if the value of money is below the equilibrium level?

If the money supply growth rate permanently increased from 4 percent to 10 percent, what would we expect to happen to the inflation rate and the nominal interest rate?

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Canada has never experienced deflation.

What kind of variables are the interest rates usually published in newspapers such as the Financial Post?

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

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Exam 11: Money Growth and Inflation

A rising price level eliminates an excess supply of money.

If the money supply growth rate permanently increased from 5 percent to 25 percent, what would we expect to happen to inflation?

As the price level decreases, what happens to the value of money?

How is velocity computed?

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?

According to the quantity equation, when velocity is stable, which of the following best describes the effects of an increase in the money supply?

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

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Which of the following best defines menu costs?

If the Bank of Canada decreases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

When do most economists believe the principle of monetary neutrality can be relevant?

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 14 percent, and money growth is 6 percent. Which statement is consistent with these facts?

When a graph of the money market is drawn with the value of money on the vertical axis, what will happen if the value of money is below the equilibrium level?

If the money supply growth rate permanently increased from 4 percent to 10 percent, what would we expect to happen to the inflation rate and the nominal interest rate?

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Canada has never experienced deflation.

What kind of variables are the interest rates usually published in newspapers such as the Financial Post?

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