Question 1

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A) falls to half it's original level. 
B) doubles. 
C) more than doubles. 
D) does not change. 
A) falls to half it's original level. 
B) doubles. 
C) more than doubles. 
D) does not change.

Question 2

When money is neutral, which of the following increases when the money supply growth rate increases?

Accepted Answer

A) real output growth 
B) real interest rates 
C) nominal interest rates 
D) the money supply divided by the price level 
A) real output growth 
B) real interest rates 
C) nominal interest rates 
D) the money supply divided by the price level

Question 3

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A) His real and nominal salary have risen. 
B) His real and nominal salary have fallen. 
C) His real salary has risen and his nominal salary has fallen. 
D) His real salary has fallen and his nominal salary has risen. 
A) His real and nominal salary have risen. 
B) His real and nominal salary have fallen. 
C) His real salary has risen and his nominal salary has fallen. 
D) His real salary has fallen and his nominal salary has risen.

Question 4

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 5

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A) 1/P represents the value of money measured in terms of goods and services. 
B) P can be interpreted as the inflation rate. 
C) the supply of money influences the value of P, but the demand for money does not. 
D) All of the above are correct. 
A) 1/P represents the value of money measured in terms of goods and services. 
B) P can be interpreted as the inflation rate. 
C) the supply of money influences the value of P, but the demand for money does not. 
D) All of the above are correct.

Question 6

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements about inflation is correct?

Accepted Answer

A) Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity. 
B) People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality. 
C) Nominal incomes are determined by nominal factors; they are not affected by real factors. 
D) Inflation does not in itself reduce people's real purchasing power. 
A) Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity. 
B) People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality. 
C) Nominal incomes are determined by nominal factors; they are not affected by real factors. 
D) Inflation does not in itself reduce people's real purchasing power.

Question 8

The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera (the local currency) in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain.

Accepted Answer

A) -20 percent 
B) 20 percent 
C) 42 percent 
D) 64 percent 
A) -20 percent 
B) 20 percent 
C) 42 percent 
D) 64 percent

Question 9

The term hyperinflation refers to

Accepted Answer

A) the spread of inflation from one country to others. 
B) a decrease in the inflation rate. 
C) a period of very high inflation. 
D) inflation accompanied by a recession. 
A) the spread of inflation from one country to others. 
B) a decrease in the inflation rate. 
C) a period of very high inflation. 
D) inflation accompanied by a recession.

Question 10

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A) is easier to impose. 
B) reduces inflation. 
C) falls mainly on high-income individuals. 
D) reduces the real cost of government expenditure. 
A) is easier to impose. 
B) reduces inflation. 
C) falls mainly on high-income individuals. 
D) reduces the real cost of government expenditure.

Question 11

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts.

Question 12

Monetary neutrality means that a change in the money supply

Accepted Answer

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

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. What quantity is measured along the horizontal axis?

Accepted Answer

A) the price level 
B) the real interest rate 
C) the value of money 
D) the quantity of money 
A) the price level 
B) the real interest rate 
C) the value of money 
D) the quantity of money

Question 14

If Y and V are constant and M doubles, the quantity equation implies that the price level

Accepted Answer

A) more than doubles. 
B) changes but less than doubles. 
C) doubles. 
D) does not change 
A) more than doubles. 
B) changes but less than doubles. 
C) doubles. 
D) does not change

Question 15

Figure 17-1  
-Refer to Figure 17-1. If the current money supply is MS1, then

Accepted Answer

A) there is no excess supply or excess demand if the value of money is 2. 
B) the equilibrium is at point C. 
C) there is an excess supply of money if the value of money is 1. 
D) None of the above is correct. 
A) there is no excess supply or excess demand if the value of money is 2. 
B) the equilibrium is at point C. 
C) there is an excess supply of money if the value of money is 1. 
D) None of the above is correct.

Question 16

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A) shift to the right of the money demand curve. 
B) shift to the left of the money demand curve. 
C) movement to the left along the money demand curve. 
D) movement to the right along the money demand curve. 
A) shift to the right of the money demand curve. 
B) shift to the left of the money demand curve. 
C) movement to the left along the money demand curve. 
D) movement to the right along the money demand curve.

Question 17

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Accepted Answer

A) lenders and people holding a lot of currency 
B) lenders but not people holding a lot of currency 
C) people holding a lot of currency but not lenders 
D) neither lenders nor people holding a lot of currency 
A) lenders and people holding a lot of currency 
B) lenders but not people holding a lot of currency 
C) people holding a lot of currency but not lenders 
D) neither lenders nor people holding a lot of currency

Question 18

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

Accepted Answer

A) increases the price level and increases the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and decreases the value of money. 
A) increases the price level and increases the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and decreases the value of money.

Question 19

Which of the following is correct?

Accepted Answer

A) Inflation impedes financial markets in their role of allocating savings to alternative investments. 
B) Inflation encourages savings through the tax treatment on capital gains. 
C) Inflation encourages larger holdings of currency by the public. 
D) Inflation reduces people's real purchasing power. 
A) Inflation impedes financial markets in their role of allocating savings to alternative investments. 
B) Inflation encourages savings through the tax treatment on capital gains. 
C) Inflation encourages larger holdings of currency by the public. 
D) Inflation reduces people's real purchasing power.

Question 20

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo

Exam 17: Money Growth and Inflation

If Y and M are constant and V doubles, the quantity equation implies that the price level

When money is neutral, which of the following increases when the money supply growth rate increases?

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

If P denotes the price of goods and services measured in terms of money, then

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Which of the following statements about inflation is correct?

The term hyperinflation refers to

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Why did farmers in the late 1800s dislike deflation?

Monetary neutrality means that a change in the money supply

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. What quantity is measured along the horizontal axis?

If Y and V are constant and M doubles, the quantity equation implies that the price level

Figure 17-1 -Refer to Figure 17-1. If the current money supply is MS1, then

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

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

Which of the following is correct?

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

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. If the current money supply is MS₁, then