Question 1

Which of the following statements is true?

Accepted Answer

A) Nominal interest rate = real interest rate - expected inflation rate. 
B) Nominal interest rate = real interest rate + expected inflation rate. 
C) Real interest rate = nominal interest rate + expected inflation rate. 
D) Expected inflation rate = nominal interest rate + real interest rate. 
E) Expected inflation rate = real interest rate - nominal interest rate. 
A) Nominal interest rate = real interest rate - expected inflation rate. 
B) Nominal interest rate = real interest rate + expected inflation rate. 
C) Real interest rate = nominal interest rate + expected inflation rate. 
D) Expected inflation rate = nominal interest rate + real interest rate. 
E) Expected inflation rate = real interest rate - nominal interest rate.

Question 2

Exhibit 14-1
  
-Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

Accepted Answer

A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A 
A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A

Question 3

In a country in which the government uses price controls to attempt to control inflation, nonmoney rationing devices will be needed to resolve shortages.

Accepted Answer

A) True 
 B)False

Question 4

The true cost of borrowing is the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the economy starts off producing Natural Real GDP. Next, aggregate supply rises, ceteris paribus. As a result, the price level falls 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 supply rose). 
C) lower than it was originally (before aggregate supply rose). 
D) equal to what it was originally (before aggregate supply rose). 
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 supply rose). 
C) lower than it was originally (before aggregate supply rose). 
D) equal to what it was originally (before aggregate supply rose).

Question 6

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

Accepted Answer

A) total 
B) average 
C) marginal 
D) statistical 
A) total 
B) average 
C) marginal 
D) statistical

Question 7

In order to turn the equation of exchange into a theory, assumptions must be made about the variables contained in the equation of exchange.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is true?

Accepted Answer

A) Monetarists believe that the government should be very involved in managing and directing the economy. 
B) Monetarists believe that the economy is self-regulating. 
C) There is very little difference between monetarist and Keynesian thought. 
D) Monetarists hold that velocity is constant. 
E) a and c 
A) Monetarists believe that the government should be very involved in managing and directing the economy. 
B) Monetarists believe that the economy is self-regulating. 
C) There is very little difference between monetarist and Keynesian thought. 
D) Monetarists hold that velocity is constant. 
E) a and c

Question 9

One-shot inflation can be caused by

Accepted Answer

A) increases in aggregate demand only. 
B) decreases in aggregate supply only. 
C) either increases in aggregate demand or decreases in aggregate supply. 
D) neither increases in aggregate demand nor decreases in aggregate supply. 
A) increases in aggregate demand only. 
B) decreases in aggregate supply only. 
C) either increases in aggregate demand or decreases in aggregate supply. 
D) neither increases in aggregate demand nor decreases in aggregate supply.

Question 10

A decrease in the interest rate due to an increase in the supply of loanable funds is referred to as the __________ effect.

Accepted Answer

A) expectations 
B) liquidity 
C) income 
D) a and c 
E) a, b and c 
A) expectations 
B) liquidity 
C) income 
D) a and c 
E) a, b and c

Question 11

The money supply rises from $520 billion to $556.4 billion. According to the simple quantity theory of money, the price level will ___________ by __________ percent.

Accepted Answer

A) rise; 7 
B) fall; 7 
C) rise; 3.5 
D) fall; 3.5 
A) rise; 7 
B) fall; 7 
C) rise; 3.5 
D) fall; 3.5

Question 12

According to the equation of exchange, if GDP equals $400 billion and the money supply equals $50 billion, the velocity of money

Accepted Answer

A) must be 8. 
B) must be 4. 
C) must be 0.8 billion. 
D) must be 450 billion. 
E) cannot be determined without knowing what the price level is. 
A) must be 8. 
B) must be 4. 
C) must be 0.8 billion. 
D) must be 450 billion. 
E) cannot be determined without knowing what the price level is.

Question 13

The simple quantity theory of money predicts that the larger the percentage change in the money supply, the larger the percentage change in Real GDP.

Accepted Answer

A) True 
 B)False

Question 14

According to monetarists, an increase in the money supply will raise Real GDP in the long run, but not in the short run.

Accepted Answer

A) True 
 B)False

Question 15

In the monetarist version of the AD-AS framework, starting from long-run equilibrium, an increase in the money supply produces

Accepted Answer

A) no change in Real GDP in the short run or the long run. 
B) a rise in Real GDP in both the short run and the long run. 
C) a rise in Real GDP in the short run, but not in the long run. 
D) a rise in Real GDP in the long run, but not in the short run. 
A) no change in Real GDP in the short run or the long run. 
B) a rise in Real GDP in both the short run and the long run. 
C) a rise in Real GDP in the short run, but not in the long run. 
D) a rise in Real GDP in the long run, but not in the short run.

Question 16

Between 1890 and 1914, the gold stock of the world doubled, but world prices fell during this time.

Accepted Answer

A) True 
 B)False

Question 17

A change in the money supply or a change in velocity will change aggregate demand, which causes the aggregate demand curve to shift.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 14-1
  
-Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a fall in velocity under monetarist assumptions?

Accepted Answer

A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A 
A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A

Question 19

The spread (difference) between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Accepted Answer

A) True 
 B)False

Question 20

When a country imposes and maintains price controls, inflation

Accepted Answer

A) can never occur. 
B) will result in a general surplus of goods and services. 
C) is felt through long lines of people wanting to buy goods. 
D) has been legislated away. 
A) can never occur. 
B) will result in a general surplus of goods and services. 
C) is felt through long lines of people wanting to buy goods. 
D) has been legislated away.

Exam 14: Money and the Economy

Which of the following statements is true?

Exhibit 14-1 -Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

In a country in which the government uses price controls to attempt to control inflation, nonmoney rationing devices will be needed to resolve shortages.

The true cost of borrowing is the nominal interest rate.

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

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

In order to turn the equation of exchange into a theory, assumptions must be made about the variables contained in the equation of exchange.

Which of the following statements is true?

One-shot inflation can be caused by

A decrease in the interest rate due to an increase in the supply of loanable funds is referred to as the __________ effect.

The money supply rises from $520 billion to $556.4 billion. According to the simple quantity theory of money, the price level will ___________ by __________ percent.

According to the equation of exchange, if GDP equals $400 billion and the money supply equals $50 billion, the velocity of money

The simple quantity theory of money predicts that the larger the percentage change in the money supply, the larger the percentage change in Real GDP.

According to monetarists, an increase in the money supply will raise Real GDP in the long run, but not in the short run.

In the monetarist version of the AD-AS framework, starting from long-run equilibrium, an increase in the money supply produces

Between 1890 and 1914, the gold stock of the world doubled, but world prices fell during this time.

A change in the money supply or a change in velocity will change aggregate demand, which causes the aggregate demand curve to shift.

Exhibit 14-1 -Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a fall in velocity under monetarist assumptions?

The spread (difference) between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

When a country imposes and maintains price controls, inflation

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

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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

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The money supply rises from $520 billion to $556.4 billion. According to the simple quantity theory of money, the price level will _ by percent.