Question 1

When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right

Accepted Answer

A) the price level must have risen 
B) the price level must have fallen. 
C) the price level rises if money supply shifts farther than money demand. 
D) the price level falls if money supply shifts farther than money demand. 
A) the price level must have risen 
B) the price level must have fallen. 
C) the price level rises if money supply shifts farther than money demand. 
D) the price level falls if money supply shifts farther than money demand.

Question 2

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Accepted Answer

A) Nominal and real tuition were both higher in 1975. 
B) Nominal and real tuition were both higher in 2011. 
C) Nominal tuition was higher in 1975, real tuition was higher in 2011. 
D) Nominal tuition was higher in 2011, real tuition was higher in 1975. 
A) Nominal and real tuition were both higher in 1975. 
B) Nominal and real tuition were both higher in 2011. 
C) Nominal tuition was higher in 1975, real tuition was higher in 2011. 
D) Nominal tuition was higher in 2011, real tuition was higher in 1975.

Question 3

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

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) the Federal Reserve sells bonds. 
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) the Federal Reserve sells bonds.

Question 4

When the Consumer Price Index increases from 100 to 120

Accepted Answer

A) more money is needed to buy the same amount of goods, so the value of money falls. 
B) more money is needed to buy the same amount of goods, so the value of money rises. 
C) less money is needed to buy the same amount of goods, so the value of money falls. 
D) less money is needed to buy the same amount of goods, so the value of money rises. 
A) more money is needed to buy the same amount of goods, so the value of money falls. 
B) more money is needed to buy the same amount of goods, so the value of money rises. 
C) less money is needed to buy the same amount of goods, so the value of money falls. 
D) less money is needed to buy the same amount of goods, so the value of money rises.

Question 5

Which of the following is correct?

Accepted Answer

A) A period of hyperinflation is a period of extraordinarily low inflation. 
B) A period of deflation is any period during which the inflation rate is decreasing. 
C) In the 1970s, U.S. inflation averaged about 7.8 percent per year 
D) All of the above are correct. 
A) A period of hyperinflation is a period of extraordinarily low inflation. 
B) A period of deflation is any period during which the inflation rate is decreasing. 
C) In the 1970s, U.S. inflation averaged about 7.8 percent per year 
D) All of the above are correct.

Question 6

Which of the following is correct? Inflation

Accepted Answer

A) impedes financial markets in their role of allocating resources. 
B) reduces the purchasing power of the average consumer. 
C) generally increases after-tax real interest rates. 
D) is most costly when anticipated. 
A) impedes financial markets in their role of allocating resources. 
B) reduces the purchasing power of the average consumer. 
C) generally increases after-tax real interest rates. 
D) is most costly when anticipated.

Question 7

If monetary neutrality holds, then an increase in the money supply

Accepted Answer

A) increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. 
B) increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. 
C) increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. 
D) increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run. 
A) increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. 
B) increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. 
C) increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. 
D) increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

Question 8

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Accepted Answer

A) The $750 is a nominal variable. The 300 cups of coffee is a real variable. 
B) The $750 is a real variable. The 300 cups of coffee is a nominal variable. 
C) Both the $750 and the 300 cups of coffee are nominal variables. 
D) Both the $750 and the 300 cups of coffee are real variables. 
A) The $750 is a nominal variable. The 300 cups of coffee is a real variable. 
B) The $750 is a real variable. The 300 cups of coffee is a nominal variable. 
C) Both the $750 and the 300 cups of coffee are nominal variables. 
D) Both the $750 and the 300 cups of coffee are real variables.

Question 9

The value of money falls 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 10

When the money market is drawn with the value of money on the vertical axis, as the price level increases 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 11

Money demand depends on

Accepted Answer

A) the price level and the interest rate. 
B) the price level but not the interest rate. 
C) the interest rate but not the price level. 
D) neither the price level nor the interest rate. 
A) the price level and the interest rate. 
B) the price level but not the interest rate. 
C) the interest rate but not the price level. 
D) neither the price level nor the interest rate.

Question 12

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A) Increases in the price level can be created by increases in money demand. 
B) Nominal incomes tend to rise at the same time that the price level is rising. 
C) As the price level rises, the value of a dollar falls. 
D) Inflation only changes nominal variables. 
A) Increases in the price level can be created by increases in money demand. 
B) Nominal incomes tend to rise at the same time that the price level is rising. 
C) As the price level rises, the value of a dollar falls. 
D) Inflation only changes nominal variables.

Question 13

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 14

When the money market is drawn with the value of money on the vertical axis, as the price level increases, 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 15

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Accepted Answer

deflation,

Question 16

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 the nominal interest rate by the same number of percentage points. 
B) nominal interest rates but by less than the percentage point increase in the inflation rate. 
C) the inflation rate but not the nominal interest. 
D) neither the inflation rate nor the nominal interest rate. 
A) the inflation rate and the nominal interest rate by the same number of percentage points. 
B) nominal interest rates but by less than the percentage point increase in the inflation rate. 
C) the inflation rate but not the nominal interest. 
D) neither the inflation rate nor the nominal interest rate.

Question 17

Economic variables whose values are measured in goods are called

Accepted Answer

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

Question 18

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A) upward-sloping. 
B) downward-sloping. 
C) horizontal. 
D) vertical. 
A) upward-sloping. 
B) downward-sloping. 
C) horizontal. 
D) vertical.

Question 19

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Accepted Answer

A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected. 
A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected.

Question 20

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A) the expected real interest rate is 7 percent. 
B) the expected real interest rate is 1 percent. 
C) the expected real interest rate is 1.33 percent. 
D) the expected real interest rate is 12 percent. 
A) the expected real interest rate is 7 percent. 
B) the expected real interest rate is 1 percent. 
C) the expected real interest rate is 1.33 percent. 
D) the expected real interest rate is 12 percent.

Exam 30: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

When the Consumer Price Index increases from 100 to 120

Which of the following is correct?

Which of the following is correct? Inflation

If monetary neutrality holds, then an increase in the money supply

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

The value of money falls as the price level

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

Money demand depends on

Which of the following helps to explain why the inflation fallacy is a fallacy?

Dollar prices and relative prices are both nominal variables.

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

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

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

Economic variables whose values are measured in goods are called

With the value of money on the vertical axis, the money supply curve is

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

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 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

A decrease in the overall price level (or falling prices) is called _. An extraordinarily high rate of inflation is called _.