Question 1

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A) People who held money would feel poorer. 
B) Prices would rise. 
C) People who had lent money at a fixed interest rate would feel poorer. 
D) All of the above are correct. 
A) People who held money would feel poorer. 
B) Prices would rise. 
C) People who had lent money at a fixed interest rate would feel poorer. 
D) All of the above are correct.

Question 2

Relative-price variability

Accepted Answer

A) rises with inflation, leading to an improved allocation of resources. 
B) rises with inflation, leading to a misallocation of resources. 
C) falls with inflation, leading to an improved allocation of resources. 
D) falls with inflation, leading to a misallocation of resources. 
A) rises with inflation, leading to an improved allocation of resources. 
B) rises with inflation, leading to a misallocation of resources. 
C) falls with inflation, leading to an improved allocation of resources. 
D) falls with inflation, leading to a misallocation of resources.

Question 3

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A) 1/P represents the value of money measured in terms of goods and services. 
B) P can be interpreted as the inflation rate. 
C) the supply of money influences the value of P, but the demand for money does not. 
D) All of the above are correct. 
A) 1/P represents the value of money measured in terms of goods and services. 
B) P can be interpreted as the inflation rate. 
C) the supply of money influences the value of P, but the demand for money does not. 
D) All of the above are correct.

Question 4

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A) $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. 
B) $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
C) 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D) 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
A) $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. 
B) $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
C) 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D) 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 5

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Accepted Answer

A) both interest income and capital gains. 
B) interest income but not capital gains. 
C) capital gains but not interest income. 
D) neither interest income nor capital gains. 
A) both interest income and capital gains. 
B) interest income but not capital gains. 
C) capital gains but not interest income. 
D) neither interest income nor capital gains.

Question 6

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 7

A reduction in the inflation rate would make relative prices

Accepted Answer

A) less variable, making it more likely that resources will be allocated to their best use. 
B) less variable, making it less likely that resources will be allocated to their best use. 
C) more variable, making it more likely that resources will be allocated to their best use. 
D) more variable, making it less likely that resources will be allocated to their best use. 
A) less variable, making it more likely that resources will be allocated to their best use. 
B) less variable, making it less likely that resources will be allocated to their best use. 
C) more variable, making it more likely that resources will be allocated to their best use. 
D) more variable, making it less likely that resources will be allocated to their best use.

Question 8

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

Accepted Answer

A) increases, so the quantity of money demanded increases. 
B) increases, so the quantity of money demanded decreases. 
C) decreases, so the quantity of money demanded decreases. 
D) decreases, so the quantity of money demanded increases. 
A) increases, so the quantity of money demanded increases. 
B) increases, so the quantity of money demanded decreases. 
C) decreases, so the quantity of money demanded decreases. 
D) decreases, so the quantity of money demanded increases.

Question 9

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Accepted Answer

rise, exce

Question 10

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 11

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 12

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A) falls to half its original level. 
B) doubles. 
C) more than doubles. 
D) does not change. 
A) falls to half its original level. 
B) doubles. 
C) more than doubles. 
D) does not change.

Question 13

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A) the inflation rate and real interest rates. 
B) the inflation rate, but not real interest rates. 
C) real interest rates, but not the inflation rate. 
D) neither the inflation rate nor real interest rates. 
A) the inflation rate and real interest rates. 
B) the inflation rate, but not real interest rates. 
C) real interest rates, but not the inflation rate. 
D) neither the inflation rate nor real interest rates.

Question 14

In the presence of inflation in the U.S., accountants incorrectly measure firms' earnings but the tax code correctly measures real incomes.

Accepted Answer

A) True 
 B)False

Question 15

When Haley states that inflation by itself always reduces the real return on her saving, she

Accepted Answer

A) has expressed the idea of the inflation tax. 
B) has expressed the idea behind menu costs. 
C) has committed the inflation fallacy. 
D) has expressed the idea behind shoeleather costs. 
A) has expressed the idea of the inflation tax. 
B) has expressed the idea behind menu costs. 
C) has committed the inflation fallacy. 
D) has expressed the idea behind shoeleather costs.

Question 16

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

Accepted Answer

A) 8. 
B) 0.5. 
C) 2. 
D) 3. 
A) 8. 
B) 0.5. 
C) 2. 
D) 3.

Question 17

According to the quantity theory of money, a 3 percent increase in the money supply

Accepted Answer

A) causes the price level to rise by 3 percent. 
B) causes the price level to rise by less than 3 percent. 
C) leaves the price level unchanged. 
D) causes the price level to fall by 3 percent. 
A) causes the price level to rise by 3 percent. 
B) causes the price level to rise by less than 3 percent. 
C) leaves the price level unchanged. 
D) causes the price level to fall by 3 percent.

Question 18

Which of the following is accurate?

Accepted Answer

A) Monetary policy is neutral in both the short run and the long run. 
B) Though monetary policy is neutral in the long run, 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. 
B) Though monetary policy is neutral in the long run, 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 19

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. If the relevant money-demand curve is the one labeled MD1, then

Accepted Answer

A) when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. 
B) when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. 
C) there is an excess demand for money if the value of money in terms of goods and services is 0.375. 
D) All of the above are correct. 
A) when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. 
B) when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. 
C) there is an excess demand for money if the value of money in terms of goods and services is 0.375. 
D) All of the above are correct.

Question 20

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Relative-price variability

If P denotes the price of goods and services measured in terms of money, then

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

A reduction in the inflation rate would make relative prices

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

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

If Y and M are constant and V doubles, the quantity equation implies that the price level

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

In the presence of inflation in the U.S., accountants incorrectly measure firms' earnings but the tax code correctly measures real incomes.

When Haley states that inflation by itself always reduces the real return on her saving, she

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

According to the quantity theory of money, a 3 percent increase in the money supply

Which of the following is accurate?

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. If the relevant money-demand curve is the one labeled MD1, then

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

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

In the long run an increase in the money supply causes the price level to . The price level moves in this direction because an increase in the money supply creates in the money market that causes people to spending.

Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

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. If the relevant money-demand curve is the one labeled MD₁, then