Question 1

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

Accepted Answer

A)  P measures the value of money measured in terms of goods and services 
B)  1/P measures the number of dollars needed to buy a basket of goods and services 
C)  1/P measures the quantity of goods and services that can be bought with $1 
D)  All of the above 
A)  P measures the value of money measured in terms of goods and services 
B)  1/P measures the number of dollars needed to buy a basket of goods and services 
C)  1/P measures the quantity of goods and services that can be bought with $1 
D)  All of the above

Question 2

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

Accepted Answer

A)  The real wage 
B)  The nominal wage 
C)  The real interest rate 
D)  Real GDP 
A)  The real wage 
B)  The nominal wage 
C)  The real interest rate 
D)  Real GDP

Question 3

Graph 30-1
  
-When the money supply curve in Graph 30-1 shifts from MS2 to MS1:

Accepted Answer

A)  the equilibrium price level increases 
B)  this may be due to the RBA selling government securities 
C)  this is due to the RBA buying government securities 
D)  the demand for goods and services increasing 
A)  the equilibrium price level increases 
B)  this may be due to the RBA selling government securities 
C)  this is due to the RBA buying government securities 
D)  the demand for goods and services increasing

Question 4

If the price level is above the equilibrium level, then:

Accepted Answer

A)  money demand will be greater than money supply 
B)  money demand will be smaller than money supply 
C)  money supply will be equal to money demand 
D)  the price level will rise 
A)  money demand will be greater than money supply 
B)  money demand will be smaller than money supply 
C)  money supply will be equal to money demand 
D)  the price level will rise

Question 5

The inflation tax is exactly like other taxes levied when the government prints money.

Accepted Answer

A) True 
 B)False

Question 6

The evidence gained from studying hyperinflation indicates that:

Accepted Answer

A)  inflation rates parallel money supply growth rates 
B)  nominal interest rates are independent of the money supply 
C)  the rate of inflation is not closely related to the rate at which the money supply changes 
D)  none of the above 
A)  inflation rates parallel money supply growth rates 
B)  nominal interest rates are independent of the money supply 
C)  the rate of inflation is not closely related to the rate at which the money supply changes 
D)  none of the above

Question 7

By reducing the cash rate in the US to almost zero per cent, what would critics of the Federal Reserve Bank (the Fed - The US central bank) believe about the Fed's ability to stimulate the economy?

Accepted Answer

By decreasing the interest rate to nearl

Question 8

The supply of money is determined by:

Accepted Answer

A)  the value of money 
B)  the price level 
C)  the Reserve Bank 
D)  the demand for money 
A)  the value of money 
B)  the price level 
C)  the Reserve Bank 
D)  the demand for money

Question 9

What is the quantity equation, and how is it used to explain the equilibrium price level?

Accepted Answer

The quantity equation is M ? V = P ? Y,

Question 10

Which of the following statements is not correct when more money is created?

Accepted Answer

A)  The price level must rise 
B)  The quantity of output must rise 
C)  The velocity of money must fall 
D)  None of the above 
A)  The price level must rise 
B)  The quantity of output must rise 
C)  The velocity of money must fall 
D)  None of the above

Question 11

Calculate the velocity of money for each of the following situations:
a. The money supply is 1000, the price level is 20 and output is 200
b. The money supply is 50, the price level is 100 and output is 20
c. The money supply is 25, the price level is 25 and output is 200
d. The money supply is 800, the price level is 2 and output is 300

Accepted Answer

a. Velocity is 4.
b.

Question 12

The principle of monetary neutrality implies that an increase in the money supply will:

Accepted Answer

A)  decrease the price level 
B)  lower nominal interest rates 
C)  lower the unemployment rate 
D)  not affect real interest rates 
A)  decrease the price level 
B)  lower nominal interest rates 
C)  lower the unemployment rate 
D)  not affect real interest rates

Question 13

An increase in the money supply:

Accepted Answer

A)  increases the ability of the economy to produce goods and services, increases the demand for goods and services, and increases the price level 
B)  leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and increases the price level 
C)  leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and decreases the price level 
D)  leaves unchanged the ability of the economy to produce goods and services, decreases the demand for goods and services, and decreases the price level 
A)  increases the ability of the economy to produce goods and services, increases the demand for goods and services, and increases the price level 
B)  leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and increases the price level 
C)  leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and decreases the price level 
D)  leaves unchanged the ability of the economy to produce goods and services, decreases the demand for goods and services, and decreases the price level

Question 14

Paying for a government program by printing money:

Accepted Answer

A)  reduces the opportunity cost of the program 
B)  is exactly like imposing an income tax to pay for the program 
C)  imposes an inflation tax to pay for the program 
D)  all of the above 
A)  reduces the opportunity cost of the program 
B)  is exactly like imposing an income tax to pay for the program 
C)  imposes an inflation tax to pay for the program 
D)  all of the above

Question 15

When money is neutral, an increase in the rate of inflation from 2 per cent to 5 per cent will _____.

Accepted Answer

A)  increase the nominal interest rate by 3percentage points 
B)  increase the real interest rate by 3 percentage points 
C)  decrease the nominal interest rate by 3 percentage points 
D)  increase the nominal interest rate by less than 3 percentage points 
A)  increase the nominal interest rate by 3percentage points 
B)  increase the real interest rate by 3 percentage points 
C)  decrease the nominal interest rate by 3 percentage points 
D)  increase the nominal interest rate by less than 3 percentage points

Question 16

The relative price of oil is a(n):

Accepted Answer

A)  actual variable 
B)  monetary variable 
C)  nominal variable 
D)  real variable 
A)  actual variable 
B)  monetary variable 
C)  nominal variable 
D)  real variable

Question 17

Inflation is the increase in the overall level of prices.

Accepted Answer

A) True 
 B)False

Question 18

Unexpected inflation has no wealth redistribution effect on the population.

Accepted Answer

A) True 
 B)False

Question 19

Real GDP measures:

Accepted Answer

A)  the dollar value of the economy's output of goods and services 
B)  the total quantity of goods and services produced 
C)  the total income received from producing goods and services in current dollars 
D)  all of the above 
A)  the dollar value of the economy's output of goods and services 
B)  the total quantity of goods and services produced 
C)  the total income received from producing goods and services in current dollars 
D)  all of the above

Question 20

What is the classical dichotomy, and to whom do we attribute it?

Accepted Answer

The classical dichotomy refers

Exam 30: Inflation: Its Causes and Costs

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

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

Graph 30-1 -When the money supply curve in Graph 30-1 shifts from MS2 to MS1:

If the price level is above the equilibrium level, then:

The inflation tax is exactly like other taxes levied when the government prints money.

The evidence gained from studying hyperinflation indicates that:

By reducing the cash rate in the US to almost zero per cent, what would critics of the Federal Reserve Bank (the Fed - The US central bank) believe about the Fed's ability to stimulate the economy?

The supply of money is determined by:

What is the quantity equation, and how is it used to explain the equilibrium price level?

Which of the following statements is not correct when more money is created?

The principle of monetary neutrality implies that an increase in the money supply will:

An increase in the money supply:

Paying for a government program by printing money:

When money is neutral, an increase in the rate of inflation from 2 per cent to 5 per cent will _____.

The relative price of oil is a(n):

Inflation is the increase in the overall level of prices.

Unexpected inflation has no wealth redistribution effect on the population.

Real GDP measures:

What is the classical dichotomy, and to whom do we attribute it?

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Graph 30-1 -When the money supply curve in Graph 30-1 shifts from MS₂ to MS₁: