Question 1

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A) decreases the price level by 2 percent. 
B) decreases the price level by less than 2 percent. 
C) increases the price level by less than 2 percent. 
D) increases the price level by 2 percent. 
A) decreases the price level by 2 percent. 
B) decreases the price level by less than 2 percent. 
C) increases the price level by less than 2 percent. 
D) increases the price level by 2 percent.

Question 2

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) 0.75 times its old value. 
A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) 0.75 times its old value.

Question 3

When deflation exists,

Accepted Answer

A) the real interest rate is less than the nominal interest rate. 
B) the real interest rate is greater than the nominal interest rate. 
C) the real interest rate and inflation are less than the nominal interest rate. 
D) prices rise. 
A) the real interest rate is less than the nominal interest rate. 
B) the real interest rate is greater than the nominal interest rate. 
C) the real interest rate and inflation are less than the nominal interest rate. 
D) prices rise.

Question 4

In the 1970s, the U.S. inflation rate reached about

Accepted Answer

A) 7 percent per year. 
B) 10 percent per year. 
C) 14 percent per year. 
D) 20 percent per year. 
A) 7 percent per year. 
B) 10 percent per year. 
C) 14 percent per year. 
D) 20 percent per year.

Question 5

Printing money to finance government expenditures

Accepted Answer

A) causes the value of money to rise. 
B) imposes a tax on everyone who holds money. 
C) is the principal method by which the U.S. government finances its expenditures. 
D) causes prices to fall. 
A) causes the value of money to rise. 
B) imposes a tax on everyone who holds money. 
C) is the principal method by which the U.S. government finances its expenditures. 
D) causes prices to fall.

Question 6

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A) is 1.5 times its old value. 
B) is 3 times its old value. 
C) is 6 times its old value. 
D) is the same as its old value. 
A) is 1.5 times its old value. 
B) is 3 times its old value. 
C) is 6 times its old value. 
D) is the same as its old value.

Question 7

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Accepted Answer

A) True 
 B)False

Question 8

When inflation rises, people will desire to hold

Accepted Answer

A) less money and will go to the bank less frequently. 
B) less money and will go to the bank more frequently. 
C) more money and will go to the bank less frequently. 
D) more money and will go to the bank more frequently. 
A) less money and will go to the bank less frequently. 
B) less money and will go to the bank more frequently. 
C) more money and will go to the bank less frequently. 
D) more money and will go to the bank more frequently.

Question 9

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A) increase real GDP and the price level. 
B) increase real GDP, but not the price level. 
C) increase the price level, but not real GDP. 
D) increase neither the price level nor real GDP. 
A) increase real GDP and the price level. 
B) increase real GDP, but not the price level. 
C) increase the price level, but not real GDP. 
D) increase neither the price level nor real GDP.

Question 10

The price level rises if either

Accepted Answer

A) money demand or money supply shifts rightward. 
B) money demand shifts rightward or money supply shifts leftward. 
C) money demand shifts leftward or money supply shifts rightward. 
D) money demand or money supply shifts leftward. 
A) money demand or money supply shifts rightward. 
B) money demand shifts rightward or money supply shifts leftward. 
C) money demand shifts leftward or money supply shifts rightward. 
D) money demand or money supply shifts leftward.

Question 11

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Accepted Answer

A) Y or V rise 
B) Y or V fall 
C) Y rises or V falls 
D) Y falls or V rises 
A) Y or V rise 
B) Y or V fall 
C) Y rises or V falls 
D) Y falls or V rises

Question 12

In the U.S., taxes on capital gains are computed using

Accepted Answer

A) nominal gains. This is one way by which higher inflation discourages saving. 
B) nominal gains. This is one way by which higher inflation encourages saving. 
C) real gains. This is one way by which higher inflation discourages saving. 
D) real gains. This is one way by which higher inflation encourages saving. 
A) nominal gains. This is one way by which higher inflation discourages saving. 
B) nominal gains. This is one way by which higher inflation encourages saving. 
C) real gains. This is one way by which higher inflation discourages saving. 
D) real gains. This is one way by which higher inflation encourages saving.

Question 13

When the money market is drawn with the value of money on the vertical axis, the price level increases if

Accepted Answer

A) money demand shifts right and decreases if money supply shifts right. 
B) money demand shifts right and decreases if money supply shifts left. 
C) money demand shifts left and decreases if money supply shifts right. 
D) money demand shifts left and decreases if money supply shifts left. 
A) money demand shifts right and decreases if money supply shifts right. 
B) money demand shifts right and decreases if money supply shifts left. 
C) money demand shifts left and decreases if money supply shifts right. 
D) money demand shifts left and decreases if money supply shifts left.

Question 14

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A) an increase in the value of money 
B) a decrease in the price level 
C) an open-market purchase of bonds by the Federal Reserve 
D) None of the above is correct. 
A) an increase in the value of money 
B) a decrease in the price level 
C) an open-market purchase of bonds by the Federal Reserve 
D) None of the above is correct.

Question 15

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest

Question 16

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

Accepted Answer

A) demanded increases. 
B) demanded decreases. 
C) supplied increases. 
D) supplied decreases. 
A) demanded increases. 
B) demanded decreases. 
C) supplied increases. 
D) supplied decreases.

Question 17

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 18

Most economists believe the principle of monetary neutrality is

Accepted Answer

A) relevant to both the short and long run. 
B) irrelevant to both the short and long run. 
C) mostly relevant to the short run. 
D) mostly relevant to the long run. 
A) relevant to both the short and long run. 
B) irrelevant to both the short and long run. 
C) mostly relevant to the short run. 
D) mostly relevant to the long run.

Question 19

In which case below is the real interest rate the highest?

Accepted Answer

A) the nominal interest rate = 1% and inflation = 3% 
B) the nominal interest rate = 6% and inflation = 4% 
C) the nominal interest rate = 2% and inflation = -1% 
D) the nominal interest rate = 2% and inflation = 1% 
A) the nominal interest rate = 1% and inflation = 3% 
B) the nominal interest rate = 6% and inflation = 4% 
C) the nominal interest rate = 2% and inflation = -1% 
D) the nominal interest rate = 2% and inflation = 1%

Question 20

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A) real GDP 
B) unemployment 
C) nominal interest rates 
D) All of the above are correct. 
A) real GDP 
B) unemployment 
C) nominal interest rates 
D) All of the above are correct.

Exam 30: Money Growth and Inflation

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

When deflation exists,

In the 1970s, the U.S. inflation rate reached about

Printing money to finance government expenditures

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

When inflation rises, people will desire to hold

The principle of monetary neutrality implies that an increase in the money supply will

The price level rises if either

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

In the U.S., taxes on capital gains are computed using

When the money market is drawn with the value of money on the vertical axis, the price level increases if

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Most economists believe the principle of monetary neutrality is

In which case below is the real interest rate the highest?

According to the classical dichotomy, which of the following is influenced by monetary factors?

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

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?