Question 1

Most economists believe that monetary neutrality provides

Accepted Answer

A) a good description of both the long run and the short run. 
B) a good description of neither the long run nor the short run. 
C) a good description of the short run, but not the long run. 
D) a good description of the long run, but not the short run. 
A) a good description of both the long run and the short run. 
B) a good description of neither the long run nor the short run. 
C) a good description of the short run, but not the long run. 
D) a good description of the long run, but not the short run.

Question 2

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

Accepted Answer

A) right, lowering the price level. 
B) right, raising the price level. 
C) left, raising the price level. 
D) left, lowering the price level. 
A) right, lowering the price level. 
B) right, raising the price level. 
C) left, raising the price level. 
D) left, lowering the price level.

Question 3

When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

Accepted Answer

A) True 
 B)False

Question 4

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Accepted Answer

A) both the nominal and the real interest rate fall. 
B) neither the nominal nor the real interest rate fall. 
C) the nominal interest rate falls, but the real interest rate does not. 
D) the real interest rate falls, but the nominal interest rate does not. 
A) both the nominal and the real interest rate fall. 
B) neither the nominal nor the real interest rate fall. 
C) the nominal interest rate falls, but the real interest rate does not. 
D) the real interest rate falls, but the nominal interest rate does not.

Question 5

People can reduce the inflation tax by

Accepted Answer

A) reducing savings. 
B) increasing deductions on their income tax. 
C) reducing cash holdings. 
D) None of the above is correct. 
A) reducing savings. 
B) increasing deductions on their income tax. 
C) reducing cash holdings. 
D) None of the above is correct.

Question 6

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through a(n) _____ in the price level.

Accepted Answer

The answer of When the Federal Reserve injects money into...

Question 7

The value of money rises as the price level

Accepted Answer

A) rises, because the number of dollars needed to buy a representative basket of goods rises. 
B) rises, because the number of dollars needed to buy a representative basket of goods falls. 
C) falls, because the number of dollars needed to buy a representative basket of goods rises. 
D) falls, because the number of dollars needed to buy a representative basket of goods falls. 
A) rises, because the number of dollars needed to buy a representative basket of goods rises. 
B) rises, because the number of dollars needed to buy a representative basket of goods falls. 
C) falls, because the number of dollars needed to buy a representative basket of goods rises. 
D) falls, because the number of dollars needed to buy a representative basket of goods falls.

Question 8

The price level is a

Accepted Answer

A) relative variable. 
B) dichotomous variable 
C) real variable. 
D) nominal variable. 
A) relative variable. 
B) dichotomous variable 
C) real variable. 
D) nominal variable.

Question 9

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) the inflation tax. 
A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) the inflation tax.

Question 10

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A) The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D) The nominal interest rate was 10 percent and the inflation rate was 4 percent. 
A) The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D) The nominal interest rate was 10 percent and the inflation rate was 4 percent.

Question 11

As the price level decreases, the value of money

Accepted Answer

A) increases, so people must hold less money to purchase goods and services. 
B) increases, so people must hold more money to purchase goods and services. 
C) decreases, so people must hold more money to purchase goods and services. 
D) decreases, so people must hold less money to purchase goods and services. 
A) increases, so people must hold less money to purchase goods and services. 
B) increases, so people must hold more money to purchase goods and services. 
C) decreases, so people must hold more money to purchase goods and services. 
D) decreases, so people must hold less money to purchase goods and services.

Question 12

The supply of money is determined by

Accepted Answer

A) the price level. 
B) the Treasury and Congressional Budget Office. 
C) the Federal Reserve System. 
D) the demand for money. 
A) the price level. 
B) the Treasury and Congressional Budget Office. 
C) the Federal Reserve System. 
D) the demand for money.

Question 13

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci

Question 14

The 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 is called the

Accepted Answer

A) velocity concept. 
B) Fisher effect. 
C) classical dichotomy. 
D) Mankiw effect. 
A) velocity concept. 
B) Fisher effect. 
C) classical dichotomy. 
D) Mankiw effect.

Question 15

Suppose an economy produces only smart phones. If the price level falls, the value of currency

Accepted Answer

A) ​rises, because one unit of currency buys more smart phones. This is called deflation. 
B) ​​rises, because one unit of currency buys more smart phones. This is called inflation. 
C) ​​falls, because one unit of currency buys fewer smart phones. This is called deflation. 
D) ​​falls, because one unit of currency buys fewer smart phones. This is called inflation. 
A) ​rises, because one unit of currency buys more smart phones. This is called deflation. 
B) ​​rises, because one unit of currency buys more smart phones. This is called inflation. 
C) ​​falls, because one unit of currency buys fewer smart phones. This is called deflation. 
D) ​​falls, because one unit of currency buys fewer smart phones. This is called inflation.

Question 16

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A) excess demand for money that will result in an increase in spending. 
B) excess demand for money that will result in a decrease in spending. 
C) excess supply of money that will result in an increase in spending. 
D) excess supply of money that will result in a decrease in spending. 
A) excess demand for money that will result in an increase in spending. 
B) excess demand for money that will result in a decrease in spending. 
C) excess supply of money that will result in an increase in spending. 
D) excess supply of money that will result in a decrease in spending.

Question 17

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A) increase employment. 
B) increase the price level. 
C) increase the incentive to save. 
D) increase the real interest rate. 
A) increase employment. 
B) increase the price level. 
C) increase the incentive to save. 
D) increase the real interest rate.

Question 18

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 19

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Accepted Answer

Higher inflation gives people

Question 20

Which of the following is not implied by the quantity equation?

Accepted Answer

A) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. 
B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C) With constant money supply and output, an increase in velocity creates an increase in the price level. 
D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level. 
A) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. 
B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C) With constant money supply and output, an increase in velocity creates an increase in the price level. 
D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

Exam 30: Money Growth and Inflation

Most economists believe that monetary neutrality provides

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

People can reduce the inflation tax by

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through a(n) _____ in the price level.

The value of money rises as the price level

The price level is a

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

As the price level decreases, the value of money

The supply of money is determined by

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

The 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 is called the

Suppose an economy produces only smart phones. If the price level falls, the value of currency

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Monetary neutrality implies that an increase in the quantity of money will

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Which of the following is not implied by the quantity equation?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

When the Federal Reserve injects money into the banking system, it initially causes an excess _ of money. Equilibrium in the money market is reestablished through a(n) _ in the price level.