Question 1

List and describe the four positions held by monetarists that help to explain the monetarists view of the economy.

Accepted Answer

Monetarists assume that velocity changes

Question 2

The money supply falls from $1,200 billion to $1,152 billion. According to the simple quantity theory of money, the price level will decline by __________ percent.

Accepted Answer

A) 4.00 
B) 3.33 
C) 5.09 
D) 4.17 
A) 4.00 
B) 3.33 
C) 5.09 
D) 4.17

Question 3

If the nominal interest rate is 7 percent and the expected inflation rate is 2 percent, the real interest rate is

Accepted Answer

A) 3 percent. 
B) 5 percent. 
C) 4 percent. 
D) 1.50 percent. 
E) 0.25 percent. 
A) 3 percent. 
B) 5 percent. 
C) 4 percent. 
D) 1.50 percent. 
E) 0.25 percent.

Question 4

Suppose the economy starts off producing Natural Real GDP. Next, aggregate demand rises, ceteris paribus. As a result, the price level rises in the short run. In the long run, when the economy has moved back to producing Natural Real GDP, the price level will be

Accepted Answer

A) higher than it was in short-run equilibrium. 
B) lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased). 
C) lower than it was originally (before aggregate demand increased). 
D) equal to what it was originally (before aggregate demand increased). 
A) higher than it was in short-run equilibrium. 
B) lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased). 
C) lower than it was originally (before aggregate demand increased). 
D) equal to what it was originally (before aggregate demand increased).

Question 5

If Real GDP is $7,000, the money supply is $5,600, and the price level is 4, then velocity is

Accepted Answer

A) 2.50. 
B) 3.33. 
C) 4.00. 
D) 5.00. 
E) none of the above 
A) 2.50. 
B) 3.33. 
C) 4.00. 
D) 5.00. 
E) none of the above

Question 6

A change in the interest rate resulting from a change in the supply of loanable funds is called the expectations effect.

Accepted Answer

A) True 
 B)False

Question 7

Based upon the equation of exchange, which of the following (ceteris paribus) is most likely to bring about inflation?

Accepted Answer

A) An increase in the money supply. 
B) A decrease in velocity. 
C) An increase in Real GDP. 
D) a and b 
E) a and c 
A) An increase in the money supply. 
B) A decrease in velocity. 
C) An increase in Real GDP. 
D) a and b 
E) a and c

Question 8

Can a one-time increase in the supply of money cause one-shot inflation?

Accepted Answer

A) Yes, because it shifts the aggregate demand curve rightward. 
B) No, because it cannot shift the aggregate demand curve rightward. 
C) Yes, because it shifts the aggregate demand curve leftward. 
D) Yes, because it shifts the aggregate supply curve rightward. 
A) Yes, because it shifts the aggregate demand curve rightward. 
B) No, because it cannot shift the aggregate demand curve rightward. 
C) Yes, because it shifts the aggregate demand curve leftward. 
D) Yes, because it shifts the aggregate supply curve rightward.

Question 9

If the money supply is $3,000, velocity is 4 and the price level is $2, then Real GDP is _____________ units of output. If the money supply doubled over a short time period to $6,000, the simple quantity theory of money would predict that ______________________.

Accepted Answer

A) 3,000; the price level would double 
B) 6,000; Real GDP would double 
C) 625; the price level would be cut in half 
D) 6,000; the price level would double 
A) 3,000; the price level would double 
B) 6,000; Real GDP would double 
C) 625; the price level would be cut in half 
D) 6,000; the price level would double

Question 10

When Milton Friedman said that inflation is always and everywhere a monetary phenomenon, he was referring to

Accepted Answer

A) one-shot inflation 
B) supply-induced inflation 
C) continued inflation 
D) hyperinflation (high rates of inflation) 
E) all kinds of inflation 
A) one-shot inflation 
B) supply-induced inflation 
C) continued inflation 
D) hyperinflation (high rates of inflation) 
E) all kinds of inflation

Question 11

The assumption made about Real GDP in the simple quantity theory of money produces a ____________________ curve in the AD-AS version of the theory.

Accepted Answer

A) horizontal AD 
B) vertical AD 
C) horizontal AS 
D) vertical AS 
A) horizontal AD 
B) vertical AD 
C) horizontal AS 
D) vertical AS

Question 12

Real estate in San Francisco that sold for $16 before gold was discovered in California was valued at $4,500 eighteen months later, as a result of the gold rush.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the expected inflation rate results in an increase in the real interest rate.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is false?

Accepted Answer

A) The exchange equation assumes that velocity is constant. 
B) Velocity is the average number of times a dollar is spent to buy final goods and services in a year. 
C) The simple quantity theory of money predicts that changes in the money supply lead to strictly proportional changes in the price level. 
D) In the simple quantity theory of money the aggregate supply curve is vertical. 
A) The exchange equation assumes that velocity is constant. 
B) Velocity is the average number of times a dollar is spent to buy final goods and services in a year. 
C) The simple quantity theory of money predicts that changes in the money supply lead to strictly proportional changes in the price level. 
D) In the simple quantity theory of money the aggregate supply curve is vertical.

Question 15

The simple quantity theory of money can be written as

Accepted Answer

A) P = MV/Q. 
B) MV = Q/P. 
C) PM = VQ. 
D) Q = PMV. 
E) all of the above 
A) P = MV/Q. 
B) MV = Q/P. 
C) PM = VQ. 
D) Q = PMV. 
E) all of the above

Question 16

Between 1890 and 1914, the gold stock of the world _______________ and world prices (in general)

Accepted Answer

A) doubled; increased. 
B) tripled; increased. 
C) rose by 50%; increased. 
D) doubled; decreased. 
E) tripled; decreased. 
A) doubled; increased. 
B) tripled; increased. 
C) rose by 50%; increased. 
D) doubled; decreased. 
E) tripled; decreased.

Question 17

Some economists argue that increases in government spending are not a likely source of continued inflation because

Accepted Answer

A) increases in government spending cause reductions in other spending components. 
B) government spending is not created by the Fed. 
C) increases in government spending can be financed by money creation. 
D) a and b 
E) a and c 
A) increases in government spending cause reductions in other spending components. 
B) government spending is not created by the Fed. 
C) increases in government spending can be financed by money creation. 
D) a and b 
E) a and c

Question 18

According to the equation of exchange, if Real GDP is $3 trillion and the money supply is $0.5 trillion, then velocity

Accepted Answer

A) must be 6. 
B) must be 1/6. 
C) must be 4 trillion. 
D) must be 1/4 trillion. 
E) cannot be determined without knowing what the price level is. 
A) must be 6. 
B) must be 1/6. 
C) must be 4 trillion. 
D) must be 1/4 trillion. 
E) cannot be determined without knowing what the price level is.

Question 19

Which of the following is consistent with the equation of exchange?

Accepted Answer

A) Total spending must equal the total sales revenues of business firms. 
B) The money supply multiplied by velocity must equal GDP. 
C) The money supply multiplied by velocity must equal the price level times Real GDP. 
D) a and b 
E) a, b and c 
A) Total spending must equal the total sales revenues of business firms. 
B) The money supply multiplied by velocity must equal GDP. 
C) The money supply multiplied by velocity must equal the price level times Real GDP. 
D) a and b 
E) a, b and c

Question 20

The money supply falls from $900 billion to $850 billion. According to the simple quantity theory of money, the price level will ___________ by __________ percent.

Accepted Answer

A) rise; 5.6 
B) fall; 5.6 
C) rise; 6.2 
D) fall; 6.2 
A) rise; 5.6 
B) fall; 5.6 
C) rise; 6.2 
D) fall; 6.2

Exam 14: Money and the Economy

List and describe the four positions held by monetarists that help to explain the monetarists view of the economy.

The money supply falls from $1,200 billion to $1,152 billion. According to the simple quantity theory of money, the price level will decline by __________ percent.

If the nominal interest rate is 7 percent and the expected inflation rate is 2 percent, the real interest rate is

Suppose the economy starts off producing Natural Real GDP. Next, aggregate demand rises, ceteris paribus. As a result, the price level rises in the short run. In the long run, when the economy has moved back to producing Natural Real GDP, the price level will be

If Real GDP is $7,000, the money supply is $5,600, and the price level is 4, then velocity is

A change in the interest rate resulting from a change in the supply of loanable funds is called the expectations effect.

Based upon the equation of exchange, which of the following (ceteris paribus) is most likely to bring about inflation?

Can a one-time increase in the supply of money cause one-shot inflation?

If the money supply is $3,000, velocity is 4 and the price level is $2, then Real GDP is _____________ units of output. If the money supply doubled over a short time period to $6,000, the simple quantity theory of money would predict that ______________________.

When Milton Friedman said that inflation is always and everywhere a monetary phenomenon, he was referring to

The assumption made about Real GDP in the simple quantity theory of money produces a ____________________ curve in the AD-AS version of the theory.

Real estate in San Francisco that sold for $16 before gold was discovered in California was valued at $4,500 eighteen months later, as a result of the gold rush.

An increase in the expected inflation rate results in an increase in the real interest rate.

Which of the following statements is false?

The simple quantity theory of money can be written as

Between 1890 and 1914, the gold stock of the world _______________ and world prices (in general)

Some economists argue that increases in government spending are not a likely source of continued inflation because

According to the equation of exchange, if Real GDP is $3 trillion and the money supply is $0.5 trillion, then velocity

Which of the following is consistent with the equation of exchange?

The money supply falls from $900 billion to $850 billion. According to the simple quantity theory of money, the price level will ___________ by __________ percent.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

If the money supply is $3,000, velocity is 4 and the price level is $2, then Real GDP is _ units of output. If the money supply doubled over a short time period to $6,000, the simple quantity theory of money would predict that __________.

The money supply falls from $900 billion to $850 billion. According to the simple quantity theory of money, the price level will _ by percent.