Question 1

Monetarists believe that an increase in the money supply will raise both Real GDP and the price level in the short run,and will only raise Real GDP in the long run.

Accepted Answer

A) True 
 B)False

Question 2

When the Fed conducts open market operations,the impact of the buying or selling of bonds will include changes in

Accepted Answer

A)  SRAS. 
B)  interest rates. 
C)  LRAS. 
D)  a and b 
E)  a,b and c 
A)  SRAS. 
B)  interest rates. 
C)  LRAS. 
D)  a and b 
E)  a,b and c

Question 3

According to monetarists,if the economy is initially in long-run equilibrium,an increase in the money supply will __________ the price level and Real GDP in the short run,and will __________ only __________ in the long run.

Accepted Answer

A)  lower; lower; the price level 
B)  raise; raise; Real GDP 
C)  raise; lower; Real GDP 
D)  raise; raise; the price level 
E)  raise; raise; the unemployment rate 
A)  lower; lower; the price level 
B)  raise; raise; Real GDP 
C)  raise; lower; Real GDP 
D)  raise; raise; the price level 
E)  raise; raise; the unemployment rate

Question 4

When Milton Friedman said that inflation is always and everywhere a monetary phenomenon,he was referring to

Accepted Answer

A)  one-shot inflation 
B)  supply-induced inflation 
C)  continued inflation 
D)  hyperinflation (high rates of inflation) 
E)  all kinds of inflation 
A)  one-shot inflation 
B)  supply-induced inflation 
C)  continued inflation 
D)  hyperinflation (high rates of inflation) 
E)  all kinds of inflation

Question 5

Which of the following statements is false?

Accepted Answer

A)  The exchange equation assumes that velocity is constant. 
B)  Velocity is the average number of times a dollar is spent to buy final goods and services in a year. 
C)  The simple quantity theory of money predicts that changes in the money supply lead to strictly proportional changes in the price level. 
D)  In the simple quantity theory of money the aggregate supply curve is vertical. 
A)  The exchange equation assumes that velocity is constant. 
B)  Velocity is the average number of times a dollar is spent to buy final goods and services in a year. 
C)  The simple quantity theory of money predicts that changes in the money supply lead to strictly proportional changes in the price level. 
D)  In the simple quantity theory of money the aggregate supply curve is vertical.

Question 6

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the __________ curve shifts to the __________.

Accepted Answer

A)  AD; left 
B)  AD; right 
C)  AS; left 
D)  AS; right 
A)  AD; left 
B)  AD; right 
C)  AS; left 
D)  AS; right

Question 7

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Accepted Answer

A) True 
 B)False

Question 8

If the real interest rate is 7.1 percent and the expected inflation rate is 2.1 percent,the nominal interest rate is

Accepted Answer

A)  9.2 percent. 
B)  7.1 percent. 
C)  4.1 percent. 
D)  5 percent. 
E)  0.5 percent. 
A)  9.2 percent. 
B)  7.1 percent. 
C)  4.1 percent. 
D)  5 percent. 
E)  0.5 percent.

Question 9

The liquidity effect is the

Accepted Answer

A)  increase in the interest rate brought on by an increase in GDP. 
B)  increase in the interest rate due to a higher expected inflation rate. 
C)  decrease in the interest rate due to an increase in the supply of loanable funds. 
D)  response,in terms of rate of flow,of the money supply to a change in government spending. 
E)  rate of change in the price level caused by a change in the supply of money. 
A)  increase in the interest rate brought on by an increase in GDP. 
B)  increase in the interest rate due to a higher expected inflation rate. 
C)  decrease in the interest rate due to an increase in the supply of loanable funds. 
D)  response,in terms of rate of flow,of the money supply to a change in government spending. 
E)  rate of change in the price level caused by a change in the supply of money.

Question 10

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

Accepted Answer

A)  income 
B)  expectations 
C)  liquidity 
D)  real 
A)  income 
B)  expectations 
C)  liquidity 
D)  real

Question 11

According to the equation of exchange,if GDP equals $2.5 trillion and the money supply equals $1 trillion,the velocity of money

Accepted Answer

A)  must be 2.5. 
B)  must be 4. 
C)  must be 0.25 trillion. 
D)  must be 4 trillion. 
E)  cannot be determined without knowing what the price level is. 
A)  must be 2.5. 
B)  must be 4. 
C)  must be 0.25 trillion. 
D)  must be 4 trillion. 
E)  cannot be determined without knowing what the price level is.

Question 12

Which of the following statements is true?

Accepted Answer

A)  Nominal interest rate = real interest rate - expected inflation rate. 
B)  Nominal interest rate = real interest rate + expected inflation rate. 
C)  Real interest rate = nominal interest rate + expected inflation rate. 
D)  Expected inflation rate = nominal interest rate + real interest rate. 
E)  Expected inflation rate = real interest rate - nominal interest rate. 
A)  Nominal interest rate = real interest rate - expected inflation rate. 
B)  Nominal interest rate = real interest rate + expected inflation rate. 
C)  Real interest rate = nominal interest rate + expected inflation rate. 
D)  Expected inflation rate = nominal interest rate + real interest rate. 
E)  Expected inflation rate = real interest rate - nominal interest rate.

Question 13

The liquidity,income,price-level,and expectations effects help to explain how changes in the money supply can affect the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

Continued inflation is caused by continued increases in aggregate demand resulting from continued increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the economy starts off producing Natural Real GDP.Next,aggregate demand rises,ceteris paribus.As a result,the price level rises in the short run.In the long run,when the economy has moved back to producing Natural Real GDP,the price level will be

Accepted Answer

A)  higher than it was in short-run equilibrium. 
B)  lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased). 
C)  lower than it was originally (before aggregate demand increased). 
D)  equal to what it was originally (before aggregate demand increased). 
A)  higher than it was in short-run equilibrium. 
B)  lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased). 
C)  lower than it was originally (before aggregate demand increased). 
D)  equal to what it was originally (before aggregate demand increased).

Question 16

In the simple quantity theory of money,the price level is assumed to be constant.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true?

Accepted Answer

A)  To a large degree,Keynesians focus on the spending components of total expenditures when they seek to understand what determines GDP; monetarists focus on the money supply and velocity when their objective is the same. 
B)  To a large degree,monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; Keynesians focus on the money supply and velocity when their objective is the same. 
C)  Both Keynesians and monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; neither group focuses on the money supply and velocity. 
D)  Neither Keynesians nor monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; both focus on the money supply and velocity. 
A)  To a large degree,Keynesians focus on the spending components of total expenditures when they seek to understand what determines GDP; monetarists focus on the money supply and velocity when their objective is the same. 
B)  To a large degree,monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; Keynesians focus on the money supply and velocity when their objective is the same. 
C)  Both Keynesians and monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; neither group focuses on the money supply and velocity. 
D)  Neither Keynesians nor monetarists focus on the spending components of total expenditures when they seek to understand what determines GDP; both focus on the money supply and velocity.

Question 18

MV in the equation of exchange is also defined as

Accepted Answer

A)  national income. 
B)  total expenditures. 
C)  personal income. 
D)  Real GDP. 
A)  national income. 
B)  total expenditures. 
C)  personal income. 
D)  Real GDP.

Question 19

Some economists argue that increases in government spending are not a likely source of continued inflation because

Accepted Answer

A)  increases in government spending cause reductions in other spending components. 
B)  government spending is not created by the Fed. 
C)  increases in government spending can be financed by money creation. 
D)  a and b 
E)  a and c 
A)  increases in government spending cause reductions in other spending components. 
B)  government spending is not created by the Fed. 
C)  increases in government spending can be financed by money creation. 
D)  a and b 
E)  a and c

Question 20

If Real GDP is $9,000,the money supply is $12,000,and velocity is 3,then the price level is

Accepted Answer

A)  2.5. 
B)  3. 
C)  4. 
D)  3.33. 
A)  2.5. 
B)  3. 
C)  4. 
D)  3.33.

Exam 14: Wages,union,and Labor

Monetarists believe that an increase in the money supply will raise both Real GDP and the price level in the short run,and will only raise Real GDP in the long run.

When the Fed conducts open market operations,the impact of the buying or selling of bonds will include changes in

According to monetarists,if the economy is initially in long-run equilibrium,an increase in the money supply will __________ the price level and Real GDP in the short run,and will __________ only __________ in the long run.

When Milton Friedman said that inflation is always and everywhere a monetary phenomenon,he was referring to

Which of the following statements is false?

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the __________ curve shifts to the __________.

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

If the real interest rate is 7.1 percent and the expected inflation rate is 2.1 percent,the nominal interest rate is

The liquidity effect is the

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

According to the equation of exchange,if GDP equals $2.5 trillion and the money supply equals $1 trillion,the velocity of money

Which of the following statements is true?

The liquidity,income,price-level,and expectations effects help to explain how changes in the money supply can affect the interest rate.

Continued inflation is caused by continued increases in aggregate demand resulting from continued increases in the money supply.

Suppose the economy starts off producing Natural Real GDP.Next,aggregate demand rises,ceteris paribus.As a result,the price level rises in the short run.In the long run,when the economy has moved back to producing Natural Real GDP,the price level will be

In the simple quantity theory of money,the price level is assumed to be constant.

Which of the following statements is true?

MV in the equation of exchange is also defined as

Some economists argue that increases in government spending are not a likely source of continued inflation because

If Real GDP is $9,000,the money supply is $12,000,and velocity is 3,then the price level is

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According to monetarists,if the economy is initially in long-run equilibrium,an increase in the money supply will the price level and Real GDP in the short run,and will only __ in the long run.

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the curve shifts to the .