Question 1

In the monetarist version of the AD-AS framework, a decrease in velocity produces a __________ shift of the __________ curve.

Accepted Answer

A) rightward; AD 
B) rightward; SRAS 
C) leftward; AD 
D) leftward; SRAS 
A) rightward; AD 
B) rightward; SRAS 
C) leftward; AD 
D) leftward; SRAS

Question 2

According to the simple quantity theory of money in the AD-AS framework, the AD curve is

Accepted Answer

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

Question 3

The California gold rush resulted in

Accepted Answer

A) an increase in the amount of money in circulation and higher prices throughout the country. 
B) no change in the amount of money in circulation and higher prices throughout the country. 
C) an increase in the amount of money in circulation and higher prices only in California. 
D) no change in the amount of money in circulation and higher prices only in California. 
A) an increase in the amount of money in circulation and higher prices throughout the country. 
B) no change in the amount of money in circulation and higher prices throughout the country. 
C) an increase in the amount of money in circulation and higher prices only in California. 
D) no change in the amount of money in circulation and higher prices only in California.

Question 4

Suppose we are at a long-run equilibrium point in an AD-AS model. Then the money supply increases. In the short run, is there any difference between what happens in the simple quantity theory of money (SQTM) version and the monetarist version of the model?

Accepted Answer

A) There is no difference. 
B) In the SQTM version, the price level rises; in the monetarist version, it does not. 
C) In the monetarist version, the price level falls; in the SQTM version, it does not. 
D) In the monetarist version, the Real GDP rises; in the SQTM version, it does not. 
E) In the SQTM version, Real GDP falls; in the monetarist version, it does not. 
A) There is no difference. 
B) In the SQTM version, the price level rises; in the monetarist version, it does not. 
C) In the monetarist version, the price level falls; in the SQTM version, it does not. 
D) In the monetarist version, the Real GDP rises; in the SQTM version, it does not. 
E) In the SQTM version, Real GDP falls; in the monetarist version, it does not.

Question 5

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Accepted Answer

A) True 
 B)False

Question 6

The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.

Accepted Answer

A) expectations 
B) Fisher 
C) liquidity 
D) income 
E) a or b 
A) expectations 
B) Fisher 
C) liquidity 
D) income 
E) a or b

Question 7

The simple quantity theory of money predicts that changes in

Accepted Answer

A) the money supply lead to strictly proportional changes in the price level. 
B) the money supply do not affect the price level. 
C) the price level lead to strictly proportional changes in velocity and GDP. 
D) velocity lead to nearly proportional changes in the money supply. 
A) the money supply lead to strictly proportional changes in the price level. 
B) the money supply do not affect the price level. 
C) the price level lead to strictly proportional changes in velocity and GDP. 
D) velocity lead to nearly proportional changes in the money supply.

Question 8

One example of one-shot inflation occurs when the SRAS curve shifts leftward.

Accepted Answer

A) True 
 B)False

Question 9

If Real GDP is $900, the money supply is $1,350, and the price level is 6, then velocity is

Accepted Answer

A) 2.00. 
B) 3.33. 
C) 4.00. 
D) 7.50. 
E) none of the above 
A) 2.00. 
B) 3.33. 
C) 4.00. 
D) 7.50. 
E) none of the above

Question 10

According to Milton Friedman, continued inflation is always and everywhere

Accepted Answer

A) a supply-side phenomenon. 
B) caused by continued decreases in aggregate supply. 
C) caused by continued increases in the budget deficit. 
D) a monetary phenomenon. 
E) none of the above 
A) a supply-side phenomenon. 
B) caused by continued decreases in aggregate supply. 
C) caused by continued increases in the budget deficit. 
D) a monetary phenomenon. 
E) none of the above

Question 11

The money supply rises from $1,800 billion to $1,908 billion. According to the simple quantity theory of money, the price level will ___________ by __________ percent.

Accepted Answer

A) rise; 6 
B) fall; 6 
C) rise; 3 
D) fall; 3 
A) rise; 6 
B) fall; 6 
C) rise; 3 
D) fall; 3

Question 12

MV in the equation of exchange is also defined as

Accepted Answer

A) national income. 
B) total expenditures. 
C) personal income. 
D) Real GDP. 
A) national income. 
B) total expenditures. 
C) personal income. 
D) Real GDP.

Question 13

The simple quantity theory of money predicts that an increase in M of 5 percent will lead to

Accepted Answer

A) an increase in P of 5 percent. 
B) an increase in P of less than 5 percent. 
C) an increase in P of more than 5 percent. 
D) a decrease in P of 5 percent. 
E) a decrease in P of more than 5 percent. 
A) an increase in P of 5 percent. 
B) an increase in P of less than 5 percent. 
C) an increase in P of more than 5 percent. 
D) a decrease in P of 5 percent. 
E) a decrease in P of more than 5 percent.

Question 14

According to monetarists, changes in velocity can

Accepted Answer

A) lower GDP 
B) raise GDP 
C) shift the SRAS, but not the LRAS 
D) a and b 
E) a, b and c 
A) lower GDP 
B) raise GDP 
C) shift the SRAS, but not the LRAS 
D) a and b 
E) a, b and c

Question 15

Continued inflation is caused by continued increases in aggregate demand resulting from continued increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 16

According to the simple quantity theory of money, if the money supply falls by 20 percent,

Accepted Answer

A) the price level will fall by 20 percent. 
B) Real GDP will rise by less than 20 percent. 
C) GDP will fall by 20 percent. 
D) velocity will rise. 
E) a and c 
A) the price level will fall by 20 percent. 
B) Real GDP will rise by less than 20 percent. 
C) GDP will fall by 20 percent. 
D) velocity will rise. 
E) a and c

Question 17

Exhibit 14-1
  
-Refer to Exhibit 14-1. A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

Accepted Answer

A) A-E-B-H-C 
B) A-D-B-I-C 
C) A-D-F-H-C 
D) A-D-B-H-C 
E) A-E-B-I-C 
A) A-E-B-H-C 
B) A-D-B-I-C 
C) A-D-F-H-C 
D) A-D-B-H-C 
E) A-E-B-I-C

Question 18

The liquidity effect is the

Accepted Answer

A) increase in the interest rate brought on by an increase in GDP. 
B) increase in the interest rate due to a higher expected inflation rate. 
C) decrease in the interest rate due to an increase in the supply of loanable funds. 
D) response, in terms of rate of flow, of the money supply to a change in government spending. 
E) rate of change in the price level caused by a change in the supply of money. 
A) increase in the interest rate brought on by an increase in GDP. 
B) increase in the interest rate due to a higher expected inflation rate. 
C) decrease in the interest rate due to an increase in the supply of loanable funds. 
D) response, in terms of rate of flow, of the money supply to a change in government spending. 
E) rate of change in the price level caused by a change in the supply of money.

Question 19

One of the positions held by monetarists is that prices and wages are flexible.

Accepted Answer

A) True 
 B)False

Question 20

In seeking to explain what determines GDP, monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

Accepted Answer

A) True 
 B)False

Exam 14: Money and the Economy

In the monetarist version of the AD-AS framework, a decrease in velocity produces a __________ shift of the __________ curve.

According to the simple quantity theory of money in the AD-AS framework, the AD curve is

The California gold rush resulted in

Suppose we are at a long-run equilibrium point in an AD-AS model. Then the money supply increases. In the short run, is there any difference between what happens in the simple quantity theory of money (SQTM) version and the monetarist version of the model?

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.

The simple quantity theory of money predicts that changes in

One example of one-shot inflation occurs when the SRAS curve shifts leftward.

If Real GDP is $900, the money supply is $1,350, and the price level is 6, then velocity is

According to Milton Friedman, continued inflation is always and everywhere

The money supply rises from $1,800 billion to $1,908 billion. According to the simple quantity theory of money, the price level will ___________ by __________ percent.

MV in the equation of exchange is also defined as

The simple quantity theory of money predicts that an increase in M of 5 percent will lead to

According to monetarists, changes in velocity can

Continued inflation is caused by continued increases in aggregate demand resulting from continued increases in the money supply.

According to the simple quantity theory of money, if the money supply falls by 20 percent,

Exhibit 14-1 -Refer to Exhibit 14-1. A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

The liquidity effect is the

One of the positions held by monetarists is that prices and wages are flexible.

In seeking to explain what determines GDP, monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

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

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International Finance

The Economic Case for and Against Government Five Topics Considered

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Filters

In the monetarist version of the AD-AS framework, a decrease in velocity produces a shift of the curve.

The money supply rises from $1,800 billion to $1,908 billion. According to the simple quantity theory of money, the price level will _ by percent.