Question 1

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.  
-Refer to Figure 30-2.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 4

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

Question 5

Suppose over some period of time the money supply tripled,velocity was unchanged,and real GDP doubled.According to the quantity equation the price level is now

Accepted Answer

A)  6 times its old value. 
B)  3 times its old value. 
C)  1.5 times its old value. 
D)  0.75 times its old value 
A)  6 times its old value. 
B)  3 times its old value. 
C)  1.5 times its old value. 
D)  0.75 times its old value

Question 6

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.  
-Refer to Figure 30-2.If the relevant money-demand curve is the one labeled MD1,then the equilibrium value of money is

Accepted Answer

A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph. 
A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph.

Question 7

If money is neutral and velocity is stable,an increase in the money supply creates a proportional increase in

Accepted Answer

A)  real output only. 
B)  nominal output only. 
C)  the price level only. 
D)  both the price level and nominal output. 
A)  real output only. 
B)  nominal output only. 
C)  the price level only. 
D)  both the price level and nominal output.

Question 8

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

Accepted Answer

A)  If velocity is stable,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,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 9

Define each of the symbols and explain the meaning of M   
V = P   
Y.

Accepted Answer

M is the quantity of money,V is the velo

Question 10

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

Accepted Answer

A)  decrease,which encourages savings. 
B)  decrease,which discourages savings. 
C)  increase,which encourages savings. 
D)  increase,which discourages savings. 
A)  decrease,which encourages savings. 
B)  decrease,which discourages savings. 
C)  increase,which encourages savings. 
D)  increase,which discourages savings.

Question 11

The shoeleather cost of inflation refers to

Accepted Answer

A)  the redistributional effects of unexpected inflation. 
B)  the time spent searching for low prices when inflation rises. 
C)  the waste of resources used to maintain lower money holdings. 
D)  the increased cost to the government of printing more money. 
A)  the redistributional effects of unexpected inflation. 
B)  the time spent searching for low prices when inflation rises. 
C)  the waste of resources used to maintain lower money holdings. 
D)  the increased cost to the government of printing more money.

Question 12

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 regarded as the "overall price level." 
C)  an increase in the value of money is associated with a decrease in P. 
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 regarded as the "overall price level." 
C)  an increase in the value of money is associated with a decrease in P. 
D)  All of the above are correct.

Question 13

Menu costs refers to

Accepted Answer

A)  resources used by people to maintain lower money holdings when inflation is high. 
B)  resources used to price shop during times of high inflation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation. 
D)  the cost of more frequent price changes induced by higher inflation. 
A)  resources used by people to maintain lower money holdings when inflation is high. 
B)  resources used to price shop during times of high inflation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation. 
D)  the cost of more frequent price changes induced by higher inflation.

Question 14

Between 1880 and 1886,prices that were

Accepted Answer

A)  lower than expected transferred wealth from creditors to debtors. 
B)  lower than expected transferred wealth from debtors to creditors. 
C)  higher than expected transferred wealth from creditors to debtors. 
D)  higher than expected transferred wealth from debtors to creditors. 
A)  lower than expected transferred wealth from creditors to debtors. 
B)  lower than expected transferred wealth from debtors to creditors. 
C)  higher than expected transferred wealth from creditors to debtors. 
D)  higher than expected transferred wealth from debtors to creditors.

Question 15

Inflation can be measured by the

Accepted Answer

A)  change in the consumer price index. 
B)  percentage change in the consumer price index. 
C)  percentage change in the price of a specific commodity. 
D)  change in the price of a specific commodity. 
A)  change in the consumer price index. 
B)  percentage change in the consumer price index. 
C)  percentage change in the price of a specific commodity. 
D)  change in the price of a specific commodity.

Question 16

When the money market is drawn with the value of money on the vertical axis,if money demand shifts leftward,then initially there is an

Accepted Answer

A)  excess demand for money which causes the price level to rise. 
B)  excess demand for money which causes the price level to fall. 
C)  excess supply of money which causes the price level to rise. 
D)  excess supply of money which causes the price level to fall. 
A)  excess demand for money which causes the price level to rise. 
B)  excess demand for money which causes the price level to fall. 
C)  excess supply of money which causes the price level to rise. 
D)  excess supply of money which causes the price level to fall.

Question 17

Over the last 70 years,the average annual U.S.inflation rate was about

Accepted Answer

A)  2 percent,implying that prices have increased 10-fold. 
B)  4 percent,implying that prices have increased 10-fold. 
C)  2 percent,implying that prices have increased 16-fold. 
D)  4 percent,implying that prices increased about 16-fold. 
A)  2 percent,implying that prices have increased 10-fold. 
B)  4 percent,implying that prices have increased 10-fold. 
C)  2 percent,implying that prices have increased 16-fold. 
D)  4 percent,implying that prices increased about 16-fold.

Question 18

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 19

Suppose that when the money supply changes,real output and velocity do not change.Then a 2 percent increase in the money supply

Accepted Answer

A)  decreases the price level by 2 percent. 
B)  decreases the price level by less than 2 percent. 
C)  increases the price level by less than 2 percent. 
D)  increases the price level by 2 percent. 
A)  decreases the price level by 2 percent. 
B)  decreases the price level by less than 2 percent. 
C)  increases the price level by less than 2 percent. 
D)  increases the price level by 2 percent.

Question 20

If the economy unexpectedly went from inflation to deflation,

Accepted Answer

A)  both debtors and creditors would have reduced real wealth. 
B)  both debtors and creditors would have increased real wealth. 
C)  debtors would gain at the expense of creditors. 
D)  creditors would gain at the expense of debtors. 
A)  both debtors and creditors would have reduced real wealth. 
B)  both debtors and creditors would have increased real wealth. 
C)  debtors would gain at the expense of creditors. 
D)  creditors would gain at the expense of debtors.

Exam 30: Money Growth and Inflation

An increase in money demand would create a surplus of money at the original value of money.

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

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

Suppose over some period of time the money supply tripled,velocity was unchanged,and real GDP doubled.According to the quantity equation the price level is now

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-2.If the relevant money-demand curve is the one labeled MD1,then the equilibrium value of money is

If money is neutral and velocity is stable,an increase in the money supply creates a proportional increase in

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

Define each of the symbols and explain the meaning of M V = P Y.

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

The shoeleather cost of inflation refers to

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

Menu costs refers to

Between 1880 and 1886,prices that were

Inflation can be measured by the

When the money market is drawn with the value of money on the vertical axis,if money demand shifts leftward,then initially there is an

Over the last 70 years,the average annual U.S.inflation rate was about

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

Suppose that when the money supply changes,real output and velocity do not change.Then a 2 percent increase in the money supply

If the economy unexpectedly went from inflation to deflation,

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

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

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-2.If the relevant money-demand curve is the one labeled MD₁,then the equilibrium value of money is