Question 1

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A)  nominal and real GDP would rise by 5 percent. 
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D)  neither nominal GDP nor real GDP would change. 
A)  nominal and real GDP would rise by 5 percent. 
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D)  neither nominal GDP nor real GDP would change.

Question 2

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Accepted Answer

A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded decreases. 
D)  decreases, so the quantity of money demanded increases. 
A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded decreases. 
D)  decreases, so the quantity of money demanded increases.

Question 3

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Accepted Answer

A)  135 
B)  132 
C)  125 
D)  121 
A)  135 
B)  132 
C)  125 
D)  121

Question 4

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)  the quantity theory and evidence from four hyperinflations during the 1920's 
B)  the quantity theory but not evidence from four hyperinflations during the 1920's 
C)  evidence from four hyperinflations during the 1920's but not the quantity theory 
D)  neither the quantity theory nor evidence from four hyperinflation during the 1920's 
A)  the quantity theory and evidence from four hyperinflations during the 1920's 
B)  the quantity theory but not evidence from four hyperinflations during the 1920's 
C)  evidence from four hyperinflations during the 1920's but not the quantity theory 
D)  neither the quantity theory nor evidence from four hyperinflation during the 1920's

Question 5

Wealth is redistributed from debtors to creditors 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 6

The classical theory of inflation

Accepted Answer

A)  is also known as the quantity theory of money. 
B)  was developed by some of the earliest economic thinkers. 
C)  is used by most modern economists to explain the long-run determinants of the inflation rate. 
D)  All of the above are correct. 
A)  is also known as the quantity theory of money. 
B)  was developed by some of the earliest economic thinkers. 
C)  is used by most modern economists to explain the long-run determinants of the inflation rate. 
D)  All of the above are correct.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Accepted Answer

A)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B)  8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
C)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
D)  8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
A)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B)  8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
C)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
D)  8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 9

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

Accepted Answer

A)  the price level and nominal wages 
B)  the price level, but not the nominal wage 
C)  the nominal wage, but not the price level 
D)  neither the nominal wage nor the price level 
A)  the price level and nominal wages 
B)  the price level, but not the nominal wage 
C)  the nominal wage, but not the price level 
D)  neither the nominal wage nor the price level

Question 10

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 11

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

Accepted Answer

A)  right, lowering the price level. 
B)  right, raising the price level. 
C)  left, raising the price level. 
D)  left, lowering the price level. 
A)  right, lowering the price level. 
B)  right, raising the price level. 
C)  left, raising the price level. 
D)  left, lowering the price level.

Question 12

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who save than for those who borrow. 
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 those who are paid a fixed nominal wage. 
D)  for savers in low income tax brackets than for savers in high income tax brackets. 
A)  for those who save than for those who borrow. 
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 those who are paid a fixed nominal wage. 
D)  for savers in low income tax brackets than for savers in high income tax brackets.

Question 13

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  3 percent 
D)  5 percent 
A)  10 percent 
B)  20 percent 
C)  3 percent 
D)  5 percent

Question 14

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Accepted Answer

hyperinfla

Question 15

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Accepted Answer

debtors/bo

Question 16

Over the past 80 years, prices in the U.S. have risen on average about

Accepted Answer

A)  2 percent per year. 
B)  4 percent per year. 
C)  3.6 percent per year. 
D)  6 percent per year. 
A)  2 percent per year. 
B)  4 percent per year. 
C)  3.6 percent per year. 
D)  6 percent per year.

Question 17

The supply of money increases when

Accepted Answer

A)  the price level falls. 
B)  the interest rate increases. 
C)  the Fed makes open-market purchases. 
D)  money demand increases. 
A)  the price level falls. 
B)  the interest rate increases. 
C)  the Fed makes open-market purchases. 
D)  money demand increases.

Question 18

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)  increases the real interest rate and the after-tax real rate of interest. 
B)  increases the real interest rate and the after-tax real rate of interest 
C)  does not change the real interest rate but raises the after tax real rate of interest. 
D)  does not change the real interest rate but reduces the after-tax real rate of interest. 
A)  increases the real interest rate and the after-tax real rate of interest. 
B)  increases the real interest rate and the after-tax real rate of interest 
C)  does not change the real interest rate but raises the after tax real rate of interest. 
D)  does not change the real interest rate but reduces the after-tax real rate of interest.

Question 19

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  an increase in the value of money 
B)  a decrease in the price level 
C)  an open-market purchase of bonds by the Federal Reserve 
D)  None of the above is correct. 
A)  an increase in the value of money 
B)  a decrease in the price level 
C)  an open-market purchase of bonds by the Federal Reserve 
D)  None of the above is correct.

Question 20

The velocity of money is

Accepted Answer

A)  the rate at which the Fed puts money into the economy. 
B)  the same thing as the long-term growth rate of the money supply. 
C)  the money supply divided by nominal GDP. 
D)  the average number of times per year a dollar is spent. 
A)  the rate at which the Fed puts money into the economy. 
B)  the same thing as the long-term growth rate of the money supply. 
C)  the money supply divided by nominal GDP. 
D)  the average number of times per year a dollar is spent.

Exam 22: Money Growth and Inflation

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Wealth is redistributed from debtors to creditors when inflation is

The classical theory of inflation

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

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

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

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

High and unexpected inflation has a greater cost

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Over the past 80 years, prices in the U.S. have risen on average about

The supply of money increases when

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

The velocity of money is

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 Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.