Question 1

If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent,the real interest rate is

Accepted Answer

A) 3 percent. 
B) 5 percent. 
C) 4 percent. 
D) 1.50 percent. 
E) 0.25 percent. 
A) 3 percent. 
B) 5 percent. 
C) 4 percent. 
D) 1.50 percent. 
E) 0.25 percent.

Question 2

In symbols,the equation of exchange says

Accepted Answer

A) MP = QV. 
B) MQ = PV. 
C) MV = PQ. 
D) MP = MQ. 
A) MP = QV. 
B) MQ = PV. 
C) MV = PQ. 
D) MP = MQ.

Question 3

Exhibit 14-1  
-Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

Accepted Answer

A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A 
A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A

Question 4

One example of one-shot inflation occurs when the SRAS curve shifts leftward.

Accepted Answer

A) True 
 B)False

Question 5

The true cost of borrowing is the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 6

Monetarists can be described as a group of macroeconomists who

Accepted Answer

A) emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle. 
B) emphasize the importance of the money supply as a determinant of macroeconomic activity. 
C) tend to view government spending and taxation policy as the chief means of stabilizing the economy. 
D) feel that money should not be created in the private banking system,but only by government. 
A) emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle. 
B) emphasize the importance of the money supply as a determinant of macroeconomic activity. 
C) tend to view government spending and taxation policy as the chief means of stabilizing the economy. 
D) feel that money should not be created in the private banking system,but only by government.

Question 7

In seeking to explain what determines GDP,monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

Accepted Answer

A) True 
 B)False

Question 8

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Accepted Answer

A) True 
 B)False

Question 9

Exhibit 14-2  
-Refer to Exhibit 14-2.The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7.What explains this?

Accepted Answer

A) an initial decrease in SRAS,followed by alternating rises in AD and decreases in SRAS 
B) continued increases in AD 
C) continued decreases in SRAS 
D) an initial rise in the price level,followed by a decrease in SRAS,and then alternating increases in AD and decreases in SRAS 
E) continued increases in SRAS 
A) an initial decrease in SRAS,followed by alternating rises in AD and decreases in SRAS 
B) continued increases in AD 
C) continued decreases in SRAS 
D) an initial rise in the price level,followed by a decrease in SRAS,and then alternating increases in AD and decreases in SRAS 
E) continued increases in SRAS

Question 10

When a country imposes and maintains price controls,inflation

Accepted Answer

A) can never occur. 
B) will result in a general surplus of goods and services. 
C) is felt through long lines of people wanting to buy goods. 
D) has been legislated away. 
A) can never occur. 
B) will result in a general surplus of goods and services. 
C) is felt through long lines of people wanting to buy goods. 
D) has been legislated away.

Question 11

In the monetarist version of the AD-AS framework,starting from long-run equilibrium,an increase in the money supply produces

Accepted Answer

A) no change in Real GDP in the short run or the long run. 
B) a rise in Real GDP in both the short run and the long run. 
C) a rise in Real GDP in the short run,but not in the long run. 
D) a rise in Real GDP in the long run,but not in the short run. 
A) no change in Real GDP in the short run or the long run. 
B) a rise in Real GDP in both the short run and the long run. 
C) a rise in Real GDP in the short run,but not in the long run. 
D) a rise in Real GDP in the long run,but not in the short run.

Question 12

Describe the expectations (or Fisher)effect.

Accepted Answer

The expectations effect (or Fisher effec

Question 13

According to Milton Friedman,continued inflation is always and everywhere

Accepted Answer

A) a supply-side phenomenon. 
B) caused by continued decreases in aggregate supply. 
C) caused by continued increases in the budget deficit. 
D) a monetary phenomenon. 
E) none of the above 
A) a supply-side phenomenon. 
B) caused by continued decreases in aggregate supply. 
C) caused by continued increases in the budget deficit. 
D) a monetary phenomenon. 
E) none of the above

Question 14

The change in the interest rate brought on by a change in Real GDP is referred to as the __________ effect.

Accepted Answer

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

Question 15

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 16

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

Accepted Answer

A) total 
B) average 
C) marginal 
D) statistical 
A) total 
B) average 
C) marginal 
D) statistical

Question 17

If the money supply is $900,velocity is 6,then in the equation of exchange,PQ is

Accepted Answer

A) $150. 
B) $1,500. 
C) $2,400. 
D) $3,600. 
A) $150. 
B) $1,500. 
C) $2,400. 
D) $3,600.

Question 18

Can a one-time increase in the supply of money cause one-shot inflation?

Accepted Answer

A) Yes,because it shifts the aggregate demand curve rightward. 
B) No,because it cannot shift the aggregate demand curve rightward. 
C) Yes,because it shifts the aggregate demand curve leftward. 
D) Yes,because it shifts the aggregate supply curve rightward. 
A) Yes,because it shifts the aggregate demand curve rightward. 
B) No,because it cannot shift the aggregate demand curve rightward. 
C) Yes,because it shifts the aggregate demand curve leftward. 
D) Yes,because it shifts the aggregate supply curve rightward.

Question 19

A monetarist would argue that

Accepted Answer

A) small changes in M could be offset by changes in V and not cause changes in P. 
B) changes in M in the short run can cause Real GDP to fall. 
C) prices and wages are flexible. 
D) b and c 
E) a,b and c 
A) small changes in M could be offset by changes in V and not cause changes in P. 
B) changes in M in the short run can cause Real GDP to fall. 
C) prices and wages are flexible. 
D) b and c 
E) a,b and c

Question 20

Exhibit 14-1  
-Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in velocity under monetarist assumptions?

Accepted Answer

A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A 
A) A-E-B 
B) B-D-A 
C) A-D-B 
D) B-A

Exam 14: Money and the Economy

If the nominal interest rate is 4 percent and the expected inflation rate is 1 percent,the real interest rate is

In symbols,the equation of exchange says

Exhibit 14-1 -Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

One example of one-shot inflation occurs when the SRAS curve shifts leftward.

The true cost of borrowing is the nominal interest rate.

Monetarists can be described as a group of macroeconomists who

In seeking to explain what determines GDP,monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Exhibit 14-2 -Refer to Exhibit 14-2.The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7.What explains this?

When a country imposes and maintains price controls,inflation

In the monetarist version of the AD-AS framework,starting from long-run equilibrium,an increase in the money supply produces

Describe the expectations (or Fisher)effect.

According to Milton Friedman,continued inflation is always and everywhere

The change in the interest rate brought on by a change in Real GDP is referred to as the __________ effect.

The liquidity effect is the

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

If the money supply is $900,velocity is 6,then in the equation of exchange,PQ is

Can a one-time increase in the supply of money cause one-shot inflation?

A monetarist would argue that

Exhibit 14-1 -Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in velocity under monetarist assumptions?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, part I: Prices and Unemployment

Macroeconomic Measurements, part II: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, technology, ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

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