Question 1

Define each of the symbols and explain the meaning of M   V = P   Y.

Accepted Answer

M is the quantity of money, V is the vel

Question 2

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Accepted Answer

The answer of The idea that firms incur actual costs...

Question 3

According to the quantity theory of money, a 3 percent increase in the money supply

Accepted Answer

A)  causes the price level to rise by 3 percent. 
B)  causes the price level to rise by less than 3 percent. 
C)  leaves the price level unchanged. 
D)  causes the price level to fall by 3 percent. 
A)  causes the price level to rise by 3 percent. 
B)  causes the price level to rise by less than 3 percent. 
C)  leaves the price level unchanged. 
D)  causes the price level to fall by 3 percent.

Question 4

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

Accepted Answer

A)  only if the increase in her nominal income is less than six percent. 
B)  only if the increase in her nominal income is more than six percent. 
C)  since inflation always reduces purchasing power. 
D)  only if her real income increases. 
A)  only if the increase in her nominal income is less than six percent. 
B)  only if the increase in her nominal income is more than six percent. 
C)  since inflation always reduces purchasing power. 
D)  only if her real income increases.

Question 5

Between 1880 and 1896 the average level of prices in the U.S. economy

Accepted Answer

A)  fell 23 percent. 
B)  fell 4 percent. 
C)  rose 23 percent. 
D)  rose 50 percent. 
A)  fell 23 percent. 
B)  fell 4 percent. 
C)  rose 23 percent. 
D)  rose 50 percent.

Question 6

Money demand refers to

Accepted Answer

A)  the total quantity of financial assets that people want to hold. 
B)  how much income people want to earn per year. 
C)  how much wealth people want to hold in liquid form. 
D)  how much currency the Federal Reserve decides to print. 
A)  the total quantity of financial assets that people want to hold. 
B)  how much income people want to earn per year. 
C)  how much wealth people want to hold in liquid form. 
D)  how much currency the Federal Reserve decides to print.

Question 7

As the price level rises, the value of money

Accepted Answer

A)  increases, so people must hold less money to purchase goods and services. 
B)  increases, so people must hold more money to purchase goods and services. 
C)  decreases, so people must hold more money to purchase goods and services. 
D)  decreases, so people must hold less money to purchase goods and services. 
A)  increases, so people must hold less money to purchase goods and services. 
B)  increases, so people must hold more money to purchase goods and services. 
C)  decreases, so people must hold more money to purchase goods and services. 
D)  decreases, so people must hold less money to purchase goods and services.

Question 8

If P = 4 and Y = 200, then which of the following pairs of values are possible?

Accepted Answer

A)  M = 800, V = 16 
B)  M = 150, V = 3 
C)  M = 400, V = 2 
D)  M = 200, V = 2 
A)  M = 800, V = 16 
B)  M = 150, V = 3 
C)  M = 400, V = 2 
D)  M = 200, V = 2

Question 9

The 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 is called the

Accepted Answer

A)  velocity concept. 
B)  Fisher effect. 
C)  classical dichotomy. 
D)  Mankiw effect. 
A)  velocity concept. 
B)  Fisher effect. 
C)  classical dichotomy. 
D)  Mankiw effect.

Question 10

If inflation is less than expected, who is wealth redistributed to?

Accepted Answer

The answer of If inflation is less than expected, who...

Question 11

Which of the following is an example of menu costs?

Accepted Answer

A)  deciding on new prices 
B)  printing new price lists 
C)  advertising new prices 
D)  All of the above are examples of menu costs. 
A)  deciding on new prices 
B)  printing new price lists 
C)  advertising new prices 
D)  All of the above are examples of menu costs.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A)  People who held money would feel poorer. 
B)  Prices would rise. 
C)  People who had lent money at a fixed interest rate would feel poorer. 
D)  All of the above are correct. 
A)  People who held money would feel poorer. 
B)  Prices would rise. 
C)  People who had lent money at a fixed interest rate would feel poorer. 
D)  All of the above are correct.

Question 15

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

Accepted Answer

The answer of Your grandfather tells you that his annual...

Question 16

If velocity and output were nearly constant, then

Accepted Answer

A)  the inflation rate would be much higher than the money supply growth rate. 
B)  the inflation rate would be about the same as the money supply growth rate. 
C)  the inflation rate would be much lower than the money supply growth rate. 
D)  any of the above would be possible. 
A)  the inflation rate would be much higher than the money supply growth rate. 
B)  the inflation rate would be about the same as the money supply growth rate. 
C)  the inflation rate would be much lower than the money supply growth rate. 
D)  any of the above would be possible.

Question 17

When Haley states that inflation by itself always reduces the real return on her saving, she

Accepted Answer

A)  has expressed the idea of the inflation tax. 
B)  has expressed the idea behind menu costs. 
C)  has committed the inflation fallacy. 
D)  has expressed the idea behind shoeleather costs. 
A)  has expressed the idea of the inflation tax. 
B)  has expressed the idea behind menu costs. 
C)  has committed the inflation fallacy. 
D)  has expressed the idea behind shoeleather costs.

Question 18

Which of the following is correct?

Accepted Answer

A)  A period of hyperinflation is a period of extraordinarily low inflation. 
B)  A period of deflation is any period during which the inflation rate is decreasing. 
C)  From 2002 to 2012, U.S. inflation averaged about 2.5 percent per year. 
D)  All of the above are correct. 
A)  A period of hyperinflation is a period of extraordinarily low inflation. 
B)  A period of deflation is any period during which the inflation rate is decreasing. 
C)  From 2002 to 2012, U.S. inflation averaged about 2.5 percent per year. 
D)  All of the above are correct.

Question 19

When inflation rises people will

Accepted Answer

A)  demand more money so the price level rises. 
B)  demand more money so the price level falls. 
C)  demand less money so the price level rises. 
D)  demand less money so the price level falls. 
A)  demand more money so the price level rises. 
B)  demand more money so the price level falls. 
C)  demand less money so the price level rises. 
D)  demand less money so the price level falls.

Question 20

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Accepted Answer

A)  3.5 percent and a real interest rate of 5 percent. 
B)  3.5 percent and a real interest rate of 2 percent. 
C)  5 percent and a real interest rate of 3.5 percent 
D)  5 percent and a real interest rate of 2 percent 
A)  3.5 percent and a real interest rate of 5 percent. 
B)  3.5 percent and a real interest rate of 2 percent. 
C)  5 percent and a real interest rate of 3.5 percent 
D)  5 percent and a real interest rate of 2 percent

Exam 22: Money Growth and Inflation

Define each of the symbols and explain the meaning of M V = P Y.

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

According to the quantity theory of money, a 3 percent increase in the money supply

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

Between 1880 and 1896 the average level of prices in the U.S. economy

Money demand refers to

As the price level rises, the value of money

If P = 4 and Y = 200, then which of the following pairs of values are possible?

The 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 is called the

If inflation is less than expected, who is wealth redistributed to?

Which of the following is an example of menu costs?

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

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

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

If velocity and output were nearly constant, then

When Haley states that inflation by itself always reduces the real return on her saving, she

Which of the following is correct?

When inflation rises people will

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

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

The idea that firms incur actual costs when they change prices is known as _. Firms in countries with lower inflation rates will change price _ frequently compared to those countries where inflation is higher.