Exam 11: Money Growth and Inflation

Your boss gives you an increase in the number of dollars you earn per hour,from $11 to $12.How does this change your nominal and real wages?

The velocity of money in the small Republic of Sloagia is always the same.Last year,the money supply was $2 billion and real GDP was $5 billion.This year,the money supply increased by 6 percent,real GDP by 4 percent,and nominal GDP is $6.5 billion. a)Calculate the velocity of money and the price levels in the two years,and then calculate the inflation rate. b)Calculate the inflation rate using the formula ÄM / M + ÄV / V = ÄP / P + ÄY / Y,where the Greek letter Ä represents a change and the ratio ÄM / M × 100 is the percentage change (or the rate of change)in M.Compare this result with the result you obtained in part a.Why could there be some difference?

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

Why is the money supply curve vertical?

The money supply in Freedonia is $200 billion.Nominal GDP is $800 billion,and real GDP is $400 billion.What is the price level in Freedonia?

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

What terms refers to the cost of changing price tags and price listings?

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?

The source of all four classic hyperinflations was high rates of money growth.

Figure 11-1 -Refer to the Figure 11-1.What happens when the money supply curve shifts from MS1 to MS2?

If the money supply growth rate permanently increased from 5 percent to 30 percent,what would we expect to happen to inflation?

When the money market is depicted in a diagram with the value of money on the vertical axis,which statement best describes the effects of an increase in money supply?

According to the principle of monetary neutrality,what will a decrease in the money supply NOT change?

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

When deciding how much to save,what interest rates do people usually care most about?

Last year,Tealandia produced 60,000 bags of green tea,which sold at 10 units each of Tealandia's currency-the leaf.Tealandia's money supply was 15,000.What was the velocity of money in Tealandia?

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

In the long run,an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

What idea does the classical dichotomy refer to?

Nominal GDP measures output of final goods and services in physical terms.