Question 1

Based on the quantity equation, if M = 125, V = 4, and Y = 200, what is P?

Accepted Answer

A) 0.5 
B) 1 
C) 1.5 
D) 2.5 
A) 0.5 
B) 1 
C) 1.5 
D) 2.5

Question 2

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t

Question 3

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

Accepted Answer

A) It creates an excess supply of money, causing people to spend more. 
B) It creates an excess supply of money, causing people to spend less. 
C) It creates an excess demand for money, causing people to spend more. 
D) It creates an excess demand for money, causing people to spend less. 
A) It creates an excess supply of money, causing people to spend more. 
B) It creates an excess supply of money, causing people to spend less. 
C) It creates an excess demand for money, causing people to spend more. 
D) It creates an excess demand for money, causing people to spend less.

Question 4

What does the principle of monetary neutrality imply?

Accepted Answer

A) An increase in the money supply will increase real GDP and the price level. 
B) An increase in the money supply will increase real GDP, but not the price level. 
C) An increase in the money supply will increase the price level, but not real GDP. 
D) An increase in the money supply will increase neither the price level nor real GDP. 
A) An increase in the money supply will increase real GDP and the price level. 
B) An increase in the money supply will increase real GDP, but not the price level. 
C) An increase in the money supply will increase the price level, but not real GDP. 
D) An increase in the money supply will increase neither the price level nor real GDP.

Question 5

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 6

Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

Accepted Answer

An increase in interest rates makes the

Question 7

How is velocity computed?

Accepted Answer

A) (P * Y)/M 
B) (P * M)/Y 
C) (Y * M)/P 
D) (Y * M)/V 
A) (P * Y)/M 
B) (P * M)/Y 
C) (Y * M)/P 
D) (Y * M)/V

Question 8

According to the classical dichotomy, which of the following is NOT influenced by monetary factors?

Accepted Answer

A) nominal GDP and nominal interest rates 
B) real wages and real GDP 
C) the price level and nominal GDP. 
D) the price level and nominal GDP 
A) nominal GDP and nominal interest rates 
B) real wages and real GDP 
C) the price level and nominal GDP. 
D) the price level and nominal GDP

Question 9

For a given real interest rate, which of the following best describes the effects of an increase in inflation?

Accepted Answer

A) Inflation makes the real interest rate decrease, which encourages savings. 
B) Inflation makes the real interest rate decrease, which discourages savings. 
C) Inflation makes the real interest rate increase, which encourages savings. 
D) Inflation makes the real interest rate increase, which discourages savings. 
A) Inflation makes the real interest rate decrease, which encourages savings. 
B) Inflation makes the real interest rate decrease, which discourages savings. 
C) Inflation makes the real interest rate increase, which encourages savings. 
D) Inflation makes the real interest rate increase, which discourages savings.

Question 10

Use the figure below for the following questions.
Figure 30-1  
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, which of the following relationships holds?

Accepted Answer

A) The value of money is less than its equilibrium level. 
B) The price level is higher than its equilibrium level. 
C) Money demand is greater than the money supply. 
D) The money supply is greater than money demand. 
A) The value of money is less than its equilibrium level. 
B) The price level is higher than its equilibrium level. 
C) Money demand is greater than the money supply. 
D) The money supply is greater than money demand.

Question 11

Which of the following best describes how the cost of unexpected inflation is distributed?

Accepted Answer

A) Unexpected inflation has a greater cost for those who borrow than those who save 
B) Unexpected inflation has a greater cost for those who hold a little money than for those who hold a lot of money 
C) Unexpected inflation has a greater cost for those whose wages increase by as much as inflation, than those who are paid a fixed nominal wage 
D) Unexpected inflation has a greater cost for savers in high income tax brackets than for savers in low income tax brackets 
A) Unexpected inflation has a greater cost for those who borrow than those who save 
B) Unexpected inflation has a greater cost for those who hold a little money than for those who hold a lot of money 
C) Unexpected inflation has a greater cost for those whose wages increase by as much as inflation, than those who are paid a fixed nominal wage 
D) Unexpected inflation has a greater cost for savers in high income tax brackets than for savers in low income tax brackets

Question 12

In order to maintain stable prices, which of the following must the central bank do?

Accepted Answer

A) maintain low interest rates 
B) keep unemployment low 
C) tightly control the money supply 
D) sell indexed bonds 
A) maintain low interest rates 
B) keep unemployment low 
C) tightly control the money supply 
D) sell indexed bonds

Question 13

Arnold puts money into an account. One year later he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods. Which of the following is consistent with these facts?

Accepted Answer

A) The nominal interest rate was 7 percent and the inflation rate was 4 percent. 
B) The nominal interest rate was 10 percent and the inflation rate was 3 percent. 
C) The nominal interest rate was 3 percent and the inflation rate was -10 percent. 
D) The nominal interest rate was 4 percent and the inflation rate was -3 percent. 
A) The nominal interest rate was 7 percent and the inflation rate was 4 percent. 
B) The nominal interest rate was 10 percent and the inflation rate was 3 percent. 
C) The nominal interest rate was 3 percent and the inflation rate was -10 percent. 
D) The nominal interest rate was 4 percent and the inflation rate was -3 percent.

Question 14

In the long run 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 15

How can people avoid the inflation tax?

Accepted Answer

A) by reducing savings 
B) by not filing a tax return 
C) by reducing cash holdings 
D) by spending less 
A) by reducing savings 
B) by not filing a tax return 
C) by reducing cash holdings 
D) by spending less

Question 16

In this problem we try to establish a link between the quantity equation, MS1U1P1dS1S1P0V = PY, and the money demand-money supply diagram (MS1U1P1dS1S1P0 is the quantity of money demanded).
-In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded, draw the Md - P curve that is implied by the quantity equation.

Accepted Answer

The quantity equation can be written und

Question 17

Suppose the Bank of Canada sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

@#IMG-DLM& When the Bank of Canada sells governmen

Question 18

When deciding how much to save, which of the following interest rates do people usually care most about?

Accepted Answer

A) after-tax nominal interest rates 
B) after-tax real interest rates 
C) before-tax real interest rates 
D) before-tax nominal interest rates 
A) after-tax nominal interest rates 
B) after-tax real interest rates 
C) before-tax real interest rates 
D) before-tax nominal interest rates

Question 19

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, which of the following happens to the value of money?

Accepted Answer

A) It increases, so the quantity of money demanded increases. 
B) It increases, so the quantity of money demanded decreases. 
C) It decreases, so the quantity of money demanded decreases. 
D) It decreases, so the quantity of money demanded increases. 
A) It increases, so the quantity of money demanded increases. 
B) It increases, so the quantity of money demanded decreases. 
C) It decreases, so the quantity of money demanded decreases. 
D) It decreases, so the quantity of money demanded increases.

Question 20

Use the figure below for the following questions.
Figure 30-1  
-Refer to Figure 30-1. What happens 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 increases. 
D) The equilibrium value of money increases. 
A) The demand for goods and services decreases. 
B) The economy's ability to produce goods and services increases. 
C) The equilibrium price level increases. 
D) The equilibrium value of money increases.

Based on the quantity equation, if M = 125, V = 4, and Y = 200, what is P?

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

What does the principle of monetary neutrality imply?

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

How is velocity computed?

According to the classical dichotomy, which of the following is NOT influenced by monetary factors?

For a given real interest rate, which of the following best describes the effects of an increase in inflation?

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 2, which of the following relationships holds?

Which of the following best describes how the cost of unexpected inflation is distributed?

In order to maintain stable prices, which of the following must the central bank do?

Arnold puts money into an account. One year later he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods. Which of the following is consistent with these facts?

In the long run when money is neutral, which of the following increases when the money supply growth rate increases?

How can people avoid the inflation tax?

Suppose the Bank of Canada sells government bonds. Use a graph of the money market to show what this does to the value of money.

When deciding how much to save, which of the following interest rates do people usually care most about?

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, which of the following happens to the value of money?

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. What happens 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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 11: Money Growth and Inflation

Based on the quantity equation, if M = 125, V = 4, and Y = 200, what is P?

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

What does the principle of monetary neutrality imply?

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

How is velocity computed?

According to the classical dichotomy, which of the following is NOT influenced by monetary factors?

For a given real interest rate, which of the following best describes the effects of an increase in inflation?

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, which of the following relationships holds?

Which of the following best describes how the cost of unexpected inflation is distributed?

In order to maintain stable prices, which of the following must the central bank do?

Arnold puts money into an account. One year later he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods. Which of the following is consistent with these facts?

In the long run when money is neutral, which of the following increases when the money supply growth rate increases?

How can people avoid the inflation tax?

Suppose the Bank of Canada sells government bonds. Use a graph of the money market to show what this does to the value of money.

When deciding how much to save, which of the following interest rates do people usually care most about?

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, which of the following happens to the value of money?

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. What happens 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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 2, which of the following relationships holds?

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. What happens when the money supply curve shifts from MS₁ to MS₂?