Question 1

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) During the 1990s, U.S. inflation averaged about 2 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) During the 1990s, U.S. inflation averaged about 2 percent per year. 
D) All of the above are correct.

Question 2

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) None of the above is correct. 
A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) None of the above is correct.

Question 3

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A) nominal and real GDP would fall by 7 percent. 
B) nominal GDP would fall by 7 percent; real GDP would be unchanged. 
C) nominal GDP would be unchanged; real GDP would fall by 7 percent. 
D) neither nominal GDP nor real GDP would change. 
A) nominal and real GDP would fall by 7 percent. 
B) nominal GDP would fall by 7 percent; real GDP would be unchanged. 
C) nominal GDP would be unchanged; real GDP would fall by 7 percent. 
D) neither nominal GDP nor real GDP would change.

Question 4

Which of the following is correct?

Accepted Answer

A) The classical dichotomy separates real and nominal variables. 
B) Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C) When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D) All of the above are correct. 
A) The classical dichotomy separates real and nominal variables. 
B) Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C) When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D) All of the above are correct.

Question 5

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

Question 6

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 17-2. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A) -43 percent 
B) -57 percent 
C) 57 percent 
D) 75 percent 
A) -43 percent 
B) -57 percent 
C) 57 percent 
D) 75 percent

Question 7

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A) the real wage 
B) the real interest rate 
C) the nominal wage 
D) All of the above are correct. 
A) the real wage 
B) the real interest rate 
C) the nominal wage 
D) All of the above are correct.

Question 8

Deflation

Accepted Answer

A) increases incomes and enhances the ability of debtors to pay off their debts. 
B) increases incomes and reduces the ability of debtors to pay off their debts. 
C) decreases incomes and enhances the ability of debtors to pay off their debts. 
D) decreases incomes and reduces the ability of debtors to pay off their debts. 
A) increases incomes and enhances the ability of debtors to pay off their debts. 
B) increases incomes and reduces the ability of debtors to pay off their debts. 
C) decreases incomes and enhances the ability of debtors to pay off their debts. 
D) decreases incomes and reduces the ability of debtors to pay off their debts.

Question 9

The price level is a

Accepted Answer

A) relative variable. 
B) dichotomous variable 
C) real variable. 
D) nominal variable. 
A) relative variable. 
B) dichotomous variable 
C) real variable. 
D) nominal variable.

Question 10

Which of the following is correct?

Accepted Answer

A) If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. 
B) If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. 
C) If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right. 
D) If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right. 
A) If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. 
B) If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. 
C) If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right. 
D) If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right.

Question 11

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Accepted Answer

A) Y rose, V rose 
B) Y fell, V fell 
C) Y rose, V fell 
D) Y fell, V rose 
A) Y rose, V rose 
B) Y fell, V fell 
C) Y rose, V fell 
D) Y fell, V rose

Question 12

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

Accepted Answer

A) money demand shifts right and decreases if money supply shifts right. 
B) money demand shifts right and decreases if money supply shifts left. 
C) money demand shifts left and decreases if money supply shifts right. 
D) money demand shifts left and decreases if money supply shifts left. 
A) money demand shifts right and decreases if money supply shifts right. 
B) money demand shifts right and decreases if money supply shifts left. 
C) money demand shifts left and decreases if money supply shifts right. 
D) money demand shifts left and decreases if money supply shifts left.

Question 13

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 17-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the economy's real GDP is 30,000 for the year. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service?

Accepted Answer

A) 4 
B) 6 
C) 8 
D) 12 
A) 4 
B) 6 
C) 8 
D) 12

Question 14

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

We must suppose that V is rela

Question 15

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A) Inflation is 5 percent; the tax rate is 20 percent. 
B) Inflation is 4 percent; the tax rate is 30 percent. 
C) Inflation is 3 percent; the tax rate is 40 percent. 
D) The after-tax real interest rate is the same for all of the above. 
A) Inflation is 5 percent; the tax rate is 20 percent. 
B) Inflation is 4 percent; the tax rate is 30 percent. 
C) Inflation is 3 percent; the tax rate is 40 percent. 
D) The after-tax real interest rate is the same for all of the above.

Question 16

In the last part of the 1800's

Accepted Answer

A) deflation made it harder for farmers to pay off their debt. 
B) deflation made it easier for farmers to pay off their debt. 
C) inflation made it harder for farmers to pay off their debt. 
D) inflation made it easier for farmers to pay off their debt. 
A) deflation made it harder for farmers to pay off their debt. 
B) deflation made it easier for farmers to pay off their debt. 
C) inflation made it harder for farmers to pay off their debt. 
D) inflation made it easier for farmers to pay off their debt.

Question 17

The supply of money increases when

Accepted Answer

A) the value of money increases. 
B) the interest rate increases. 
C) the Fed makes open-market purchases. 
D) None of the above is correct. 
A) the value of money increases. 
B) the interest rate increases. 
C) the Fed makes open-market purchases. 
D) None of the above is correct.

Question 18

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A) is irrelevant for understanding the determinants of nominal and real variables. 
B) determines nominal variables, but not real variables. 
C) determines real variables, but not nominal variables. 
D) is a determinant of both real and nominal variables. 
A) is irrelevant for understanding the determinants of nominal and real variables. 
B) determines nominal variables, but not real variables. 
C) determines real variables, but not nominal variables. 
D) is a determinant of both real and nominal variables.

Question 19

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 20

Figure 17-1  
-Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A) the demand for goods and services decreases. 
B) the economy's ability to produce goods and services increases. 
C) the equilibrium price level decreases. 
D) None of the above is correct. 
A) the demand for goods and services decreases. 
B) the economy's ability to produce goods and services increases. 
C) the equilibrium price level decreases. 
D) None of the above is correct.

Exam 17: Money Growth and Inflation

Which of the following is correct?

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Which of the following is correct?

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

According to the classical dichotomy, which of the following is influenced by monetary factors?

Deflation

The price level is a

Which of the following is correct?

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

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

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

In the last part of the 1800's

The supply of money increases when

The classical dichotomy refers to the idea that the supply of money

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Figure 17-1 -Refer to Figure 17-1. When the money supply curve shifts from MS1 to MS2,

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

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Open-Economy Macroeconomic Models

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 Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 17-1 -Refer to Figure 17-1. When the money supply curve shifts from MS₁ to MS₂,