Question 1

When the money market is drawn with the value of money on the vertical axis,if there is a surplus of money then

Accepted Answer

A)  the value of money rises which will make people desire to hold more money. 
B)  the value of money rises which will make people desire to hold less money. 
C)  the value of money falls which will make people desire to hold more money. 
D)  the value of money falls which will make people desire to hold less money. 
A)  the value of money rises which will make people desire to hold more money. 
B)  the value of money rises which will make people desire to hold less money. 
C)  the value of money falls which will make people desire to hold more money. 
D)  the value of money falls which will make people desire to hold less money.

Question 2

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)  Friedman Effect. 
B)  Hume Effect. 
C)  Fisher Effect. 
D)  None of the above is correct. 
A)  Friedman Effect. 
B)  Hume Effect. 
C)  Fisher Effect. 
D)  None of the above is correct.

Question 3

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Accepted Answer

A)  both higher inflation and higher nominal interest rates. 
B)  a higher inflation rate,but not higher nominal interest rates. 
C)  a higher nominal interest rate,but not higher inflation. 
D)  neither a higher inflation rate nor a higher nominal interest rate. 
A)  both higher inflation and higher nominal interest rates. 
B)  a higher inflation rate,but not higher nominal interest rates. 
C)  a higher nominal interest rate,but not higher inflation. 
D)  neither a higher inflation rate nor a higher nominal interest rate.

Question 4

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 5

Figure 30-1  
-Refer to Figure 30-1.If the money supply is MS2 and the value of money is 2,then there is an excess

Accepted Answer

A)  demand for money that is represented by the distance between points A and C. 
B)  demand for money that is represented by the distance between points A and B. 
C)  supply of money that is represented by the distance between points A and C. 
D)  supply of money that is represented by the distance between points A and B. 
A)  demand for money that is represented by the distance between points A and C. 
B)  demand for money that is represented by the distance between points A and B. 
C)  supply of money that is represented by the distance between points A and C. 
D)  supply of money that is represented by the distance between points A and B.

Question 6

When the price level falls,the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases,so the value of money rises. 
B)  increases,so the value of money falls. 
C)  decreases,so the value of money rises. 
D)  decreases,so the value of money falls. 
A)  increases,so the value of money rises. 
B)  increases,so the value of money falls. 
C)  decreases,so the value of money rises. 
D)  decreases,so the value of money falls.

Question 7

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 8

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha

Question 9

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

We must suppose that V is rela

Question 10

If the price index in some country were falling over time,economists would say that country had

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation. 
A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation.

Question 11

To explain the long-run determinants of the price level and the inflation rate,most economists today rely on the

Accepted Answer

A)  quantity theory of money. 
B)  price-index theory of money. 
C)  theory of hyperinflation. 
D)  disequilibrium theory of money and inflation. 
A)  quantity theory of money. 
B)  price-index theory of money. 
C)  theory of hyperinflation. 
D)  disequilibrium theory of money and inflation.

Question 12

Which of the following is correct?

Accepted Answer

A)  If the Fed purchases bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve. 
B)  If the Fed sells bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve. 
C)  If the Fed purchases bonds,then the money supply curve shifts right.An increase in the price level shifts the money supply curve right. 
D)  If the Fed sells bonds,then the money supply curve shifts right.A decrease in the price level shifts the money supply curve right. 
A)  If the Fed purchases bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve. 
B)  If the Fed sells bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve. 
C)  If the Fed purchases bonds,then the money supply curve shifts right.An increase in the price level shifts the money supply curve right. 
D)  If the Fed sells bonds,then the money supply curve shifts right.A decrease in the price level shifts the money supply curve right.

Question 13

Inflation is

Accepted Answer

A)  more about the value of goods than about the value of money. 
B)  more about the value of money than about the value of goods. 
C)  best understood by looking at the individual prices that make up price indexes. 
D)  viewed by most economists today as a phenomenon that cannot be explained by the ideas of the "classical" economists. 
A)  more about the value of goods than about the value of money. 
B)  more about the value of money than about the value of goods. 
C)  best understood by looking at the individual prices that make up price indexes. 
D)  viewed by most economists today as a phenomenon that cannot be explained by the ideas of the "classical" economists.

Question 14

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A)  high,whether it is expected or not. 
B)  low,whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low. 
A)  high,whether it is expected or not. 
B)  low,whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low.

Question 15

High and unexpected inflation entails a greater cost

Accepted Answer

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

Question 16

Suppose the money market,drawn with the value of money on the vertical axis,is in equilibrium.If the money supply increases,then at the old value of money there is an

Accepted Answer

A)  excess demand for money that will result in an increase in spending. 
B)  excess demand for money that will result in a decrease in spending. 
C)  excess supply of money that will result in an increase in spending. 
D)  excess supply of money that will result in a decrease in spending. 
A)  excess demand for money that will result in an increase in spending. 
B)  excess demand for money that will result in a decrease in spending. 
C)  excess supply of money that will result in an increase in spending. 
D)  excess supply of money that will result in a decrease in spending.

Question 17

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)  both the classical dichotomy and the quantity theory of money. 
B)  the classical dichotomy,but not the quantity theory of money. 
C)  the quantity theory of money,but not the classical dichotomy. 
D)  neither the classical dichotomy nor the quantity theory of money. 
A)  both the classical dichotomy and the quantity theory of money. 
B)  the classical dichotomy,but not the quantity theory of money. 
C)  the quantity theory of money,but not the classical dichotomy. 
D)  neither the classical dichotomy nor the quantity theory of money.

Question 18

When inflation causes relative-price variability,

Accepted Answer

A)  consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired. 
B)  consumer decisions are distorted,but markets are still able to efficiently allocate factors of production. 
C)  consumer decisions are not distorted,but the ability of markets to efficiently allocate factors of production is impaired. 
D)  consumer decisions are not distorted and markets are still able to efficiently allocate factors of production. 
A)  consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired. 
B)  consumer decisions are distorted,but markets are still able to efficiently allocate factors of production. 
C)  consumer decisions are not distorted,but the ability of markets to efficiently allocate factors of production is impaired. 
D)  consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.

Question 19

In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

Accepted Answer

A)  selling bonds on the open market,which would have raised the value of money 
B)  purchasing bonds on the open market,which would have raised the value of money. 
C)  selling bonds on the open market,which would have raised the value of money. 
D)  purchasing bonds on the open market,which would have lowered the value of money. 
A)  selling bonds on the open market,which would have raised the value of money 
B)  purchasing bonds on the open market,which would have raised the value of money. 
C)  selling bonds on the open market,which would have raised the value of money. 
D)  purchasing bonds on the open market,which would have lowered the value of money.

Question 20

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

Accepted Answer

A)  nominal wages 
B)  the price level 
C)  nominal GDP 
D)  All of the above are correct. 
A)  nominal wages 
B)  the price level 
C)  nominal GDP 
D)  All of the above are correct.

Exam 30: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis,if there is a surplus of money then

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Shoeleather costs and menu costs are both costs of anticipated inflation.

Figure 30-1 -Refer to Figure 30-1.If the money supply is MS2 and the value of money is 2,then there is an excess

When the price level falls,the number of dollars needed to buy a representative basket of goods

According to the classical dichotomy,what changes nominal variables? What changes real variables?

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

If the price index in some country were falling over time,economists would say that country had

To explain the long-run determinants of the price level and the inflation rate,most economists today rely on the

Which of the following is correct?

Inflation is

Wealth is redistributed from creditors to debtors when inflation is

High and unexpected inflation entails a greater cost

Suppose the money market,drawn with the value of money on the vertical axis,is in equilibrium.If the money supply increases,then at the old value of money there is an

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

When inflation causes relative-price variability,

In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

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

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 30-1 -Refer to Figure 30-1.If the money supply is MS₂ and the value of money is 2,then there is an excess