Question 1

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Accepted Answer

A) M = 500, V = 4 
B) M = 1500, V = 3 
C) M = 2000, V = 2 
D) M = 500, V = 1 
A) M = 500, V = 4 
B) M = 1500, V = 3 
C) M = 2000, V = 2 
D) M = 500, V = 1

Question 2

The quantity theory of money

Accepted Answer

A) is a fairly recent addition to economic theory. 
B) can explain both moderate inflation and hyperinflation. 
C) argues that inflation is caused by too little money in the economy. 
D) All of the above are correct. 
A) is a fairly recent addition to economic theory. 
B) can explain both moderate inflation and hyperinflation. 
C) argues that inflation is caused by too little money in the economy. 
D) All of the above are correct.

Question 3

Open-market purchases by the Fed make the money supply

Accepted Answer

A) increase, which makes the value of money increase. 
B) increase, which makes the value of money decrease. 
C) decrease, which makes the value of money decrease. 
D) decrease, which makes the value of money increase. 
A) increase, which makes the value of money increase. 
B) increase, which makes the value of money decrease. 
C) decrease, which makes the value of money decrease. 
D) decrease, which makes the value of money increase.

Question 4

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 17-3. What quantity is measured along the vertical axis?

Accepted Answer

A) the price level 
B) the velocity of money 
C) the value of money 
D) the quantity of money 
A) the price level 
B) the velocity of money 
C) the value of money 
D) the quantity of money

Question 5

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

Accepted Answer

A) $4,000. 
B) $2,250. 
C) $250. 
D) $36,000. 
A) $4,000. 
B) $2,250. 
C) $250. 
D) $36,000.

Question 6

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Accepted Answer

A) decrease that benefited creditors at the expense of debtors. 
B) decrease that benefited debtors at the expense of creditors. 
C) increase that benefited creditors at the expense of debtors. 
D) increase that benefited debtors at the expense of creditors. 
A) decrease that benefited creditors at the expense of debtors. 
B) decrease that benefited debtors at the expense of creditors. 
C) increase that benefited creditors at the expense of debtors. 
D) increase that benefited debtors at the expense of creditors.

Question 7

Which of the following is not correct?

Accepted Answer

A) The inflation rate is measured as the percentage change in a price index. 
B) For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent. 
C) During the 19th century there were long periods of falling prices in the U.S. 
D) Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes. 
A) The inflation rate is measured as the percentage change in a price index. 
B) For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent. 
C) During the 19th century there were long periods of falling prices in the U.S. 
D) Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.

Question 8

The classical theory of inflation

Accepted Answer

A) is also known as the quantity theory of money. 
B) was developed by some of the earliest economic thinkers. 
C) is used by most modern economists to explain the long-run determinants of the inflation rate. 
D) All of the above are correct. 
A) is also known as the quantity theory of money. 
B) was developed by some of the earliest economic thinkers. 
C) is used by most modern economists to explain the long-run determinants of the inflation rate. 
D) All of the above are correct.

Question 9

Which of the following is not implied by the quantity equation?

Accepted Answer

A) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. 
B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C) With constant money supply and output, an increase in velocity creates an increase in the price level. 
D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level. 
A) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. 
B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C) With constant money supply and output, an increase in velocity creates an increase in the price level. 
D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

Question 10

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest

Question 11

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 12

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A) 9 percent inflation in the United States 
B) -1 percent inflation in Russia 
C) 25 percent inflation in Venezuela 
D) 2 percent inflation in Japan 
A) 9 percent inflation in the United States 
B) -1 percent inflation in Russia 
C) 25 percent inflation in Venezuela 
D) 2 percent inflation in Japan

Question 13

Other things the same, an increase in velocity means that

Accepted Answer

A) transactions per dollar increase so the price level rises. 
B) transactions per dollar increase so the price level falls. 
C) transactions per dollar decrease so the price level rises. 
D) transactions per dollar decrease so the price level falls. 
A) transactions per dollar increase so the price level rises. 
B) transactions per dollar increase so the price level falls. 
C) transactions per dollar decrease so the price level rises. 
D) transactions per dollar decrease so the price level falls.

Question 14

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

Accepted Answer

A) right, lowering the price level. 
B) right, raising the price level. 
C) left, raising the price level. 
D) left, lowering the price level. 
A) right, lowering the price level. 
B) right, raising the price level. 
C) left, raising the price level. 
D) left, lowering the price level.

Question 15

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 16

When inflation rises, people will desire to hold

Accepted Answer

A) less money and will go to the bank less frequently. 
B) less money and will go to the bank more frequently. 
C) more money and will go to the bank less frequently. 
D) more money and will go to the bank more frequently. 
A) less money and will go to the bank less frequently. 
B) less money and will go to the bank more frequently. 
C) more money and will go to the bank less frequently. 
D) more money and will go to the bank more frequently.

Question 17

Monetary neutrality means that a change in the money supply

Accepted Answer

A) does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run. 
B) does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run. 
C) does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run. 
D) does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run. 
A) does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run. 
B) does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run. 
C) does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run. 
D) does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.

Question 18

Interest rates adjusted for the effects of inflation

Accepted Answer

A) and inflation are nominal variables. 
B) and inflation are real variables. 
C) are real variables; inflation is a nominal variable. 
D) are nominal variables; inflation is a real variable. 
A) and inflation are nominal variables. 
B) and inflation are real variables. 
C) are real variables; inflation is a nominal variable. 
D) are nominal variables; inflation is a real variable.

Question 19

You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A) 3 percent 
B) 3.75 percent 
C) 5 percent 
D) 6 percent 
A) 3 percent 
B) 3.75 percent 
C) 5 percent 
D) 6 percent

Question 20

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate?

Accepted Answer

A) 11.5 percent 
B) 7.5 percent 
C) 4.5 percent 
D) 2.5 percent 
A) 11.5 percent 
B) 7.5 percent 
C) 4.5 percent 
D) 2.5 percent

Exam 17: Money Growth and Inflation

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

The quantity theory of money

Open-market purchases by the Fed make the money supply

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. What quantity is measured along the vertical axis?

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Which of the following is not correct?

The classical theory of inflation

Which of the following is not implied by the quantity equation?

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

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

Which country is correctly matched with its 2009 inflation rate?

Other things the same, an increase in velocity means that

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

When inflation rises, people will desire to hold

Monetary neutrality means that a change in the money supply

Interest rates adjusted for the effects of inflation

You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate?

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

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