Question 1

As the price level falls, the value of money falls.

Accepted Answer

A) True 
 B)False

Question 2

The quantity theory of money

Accepted Answer

A)  is a fairly recent addition to economic theory. 
B)  can explain both moderate inflation and hyperinflation. 
C)  argues that inflation is caused by too little money in the economy. 
D)  All of the above are correct. 
A)  is a fairly recent addition to economic theory. 
B)  can explain both moderate inflation and hyperinflation. 
C)  argues that inflation is caused by too little money in the economy. 
D)  All of the above are correct.

Question 3

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A)  falls to half its original level. 
B)  doubles. 
C)  more than doubles. 
D)  does not change. 
A)  falls to half its original level. 
B)  doubles. 
C)  more than doubles. 
D)  does not change.

Question 4

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)  1/P represents the value of money measured in terms of goods and services. 
B)  P can be interpreted as the inflation rate. 
C)  the supply of money influences the value of P, but the demand for money does not. 
D)  All of the above are correct. 
A)  1/P represents the value of money measured in terms of goods and services. 
B)  P can be interpreted as the inflation rate. 
C)  the supply of money influences the value of P, but the demand for money does not. 
D)  All of the above are correct.

Question 5

Which of the following is not correct?

Accepted Answer

A)  The inflation rate is measured as the percentage change in a price index. 
B)  For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent. 
C)  During the 19th century there were long periods of falling prices in the U.S. 
D)  Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes. 
A)  The inflation rate is measured as the percentage change in a price index. 
B)  For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent. 
C)  During the 19th century there were long periods of falling prices in the U.S. 
D)  Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.

Question 6

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Accepted Answer

A)  10.5 percent 
B)  20 percent 
C)  5.5 percent 
D)  3.2 percent 
A)  10.5 percent 
B)  20 percent 
C)  5.5 percent 
D)  3.2 percent

Question 7

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

nominal, r

Question 8

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Accepted Answer

A) True 
 B)False

Question 9

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. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the economy's real GDP is 20,000 for the year. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service?

Accepted Answer

A)  4 
B)  2 
C)  8 
D)  10 
A)  4 
B)  2 
C)  8 
D)  10

Question 10

An excess supply of money is eliminated by a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Question 11

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Accepted Answer

A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall. 
A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall.

Question 12

When prices are falling, economists say that there is

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation. 
A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation.

Question 13

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess

Accepted Answer

A)  supply of money, causing people to spend more. 
B)  supply of money, causing people to spend less. 
C)  demand for money, causing people to spend more. 
D)  demand for money, causing people to spend less. 
A)  supply of money, causing people to spend more. 
B)  supply of money, causing people to spend less. 
C)  demand for money, causing people to spend more. 
D)  demand for money, causing people to spend less.

Question 14

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Accepted Answer

rapid money supply g

Question 15

Shoeleather cost refers to

Accepted Answer

A)  the cost of more frequent price changes induced by higher inflation. 
B)  the distortion in resource allocation created by distortions in relative prices due to inflation. 
C)  resources used to maintain lower money holdings when inflation is high. 
D)  the tendency to expend more effort searching for the lowest price when inflation is high. 
A)  the cost of more frequent price changes induced by higher inflation. 
B)  the distortion in resource allocation created by distortions in relative prices due to inflation. 
C)  resources used to maintain lower money holdings when inflation is high. 
D)  the tendency to expend more effort searching for the lowest price when inflation is high.

Question 16

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A)  shift to the right of the money demand curve. 
B)  shift to the left of the money demand curve. 
C)  movement to the left along the money demand curve. 
D)  movement to the right along the money demand curve. 
A)  shift to the right of the money demand curve. 
B)  shift to the left of the money demand curve. 
C)  movement to the left along the money demand curve. 
D)  movement to the right along the money demand curve.

Question 17

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

A)  higher than she had expected, and the real value of the loan is higher than she had expected. 
B)  higher than she had expected, and the real value of the loan is lower than she had expected. 
C)  lower than she had expected, and the real value of the loan is higher than she had expected. 
D)  lower then she had expected, and the real value of the loan is lower than she had expected. 
A)  higher than she had expected, and the real value of the loan is higher than she had expected. 
B)  higher than she had expected, and the real value of the loan is lower than she had expected. 
C)  lower than she had expected, and the real value of the loan is higher than she had expected. 
D)  lower then she had expected, and the real value of the loan is lower than she had expected.

Question 18

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)  either a rise in output or a rise in the rate at which money changes hands. 
B)  either a rise in output or a fall in the rate at which money changes hands. 
C)  either a fall in output or a rise in the rate at which money changes hands. 
D)  either a fall in output or a fall in the rate at which money changes hands. 
A)  either a rise in output or a rise in the rate at which money changes hands. 
B)  either a rise in output or a fall in the rate at which money changes hands. 
C)  either a fall in output or a rise in the rate at which money changes hands. 
D)  either a fall in output or a fall in the rate at which money changes hands.

Question 19

Which of the following is correct?

Accepted Answer

A)  The Continental Congress used the inflation tax to help finance the American Revolution. 
B)  The inflation is today a principal source of revenue for the U.S. government. 
C)  There is no way a person can avoid the inflation tax. 
D)  Governments can only raise revenues through taxation. 
A)  The Continental Congress used the inflation tax to help finance the American Revolution. 
B)  The inflation is today a principal source of revenue for the U.S. government. 
C)  There is no way a person can avoid the inflation tax. 
D)  Governments can only raise revenues through taxation.

Question 20

Interest rates adjusted for the effects of inflation

Accepted Answer

A)  and inflation are nominal variables. 
B)  and inflation are real variables. 
C)  are real variables; inflation is a nominal variable. 
D)  are nominal variables; inflation is a real variable. 
A)  and inflation are nominal variables. 
B)  and inflation are real variables. 
C)  are real variables; inflation is a nominal variable. 
D)  are nominal variables; inflation is a real variable.

Exam 17: Money Growth and Inflation

As the price level falls, the value of money falls.

The quantity theory of money

If Y and M are constant and V doubles, the quantity equation implies that the price level

If P denotes the price of goods and services measured in terms of money, then

Which of the following is not correct?

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

An excess supply of money is eliminated by a decrease in the value of money.

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

When prices are falling, economists say that there is

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Shoeleather cost refers to

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Which of the following is correct?

Interest rates adjusted for the effects of inflation

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

In the long run inflation is explained by . For countries that had hyperinflation this source of inflation arose primarily because the government .