Question 1

If M = 12,000, P = 3, and Y = 32,000, then velocity =

Accepted Answer

A)  1.125. Velocity will rise if money changes hands more frequently. 
B)  1.125. Velocity will rise if money changes hands less frequently. 
C)  8. Velocity will rise if money changes hands more frequently. 
D)  8. Velocity will rise if money changes hands less frequently. 
A)  1.125. Velocity will rise if money changes hands more frequently. 
B)  1.125. Velocity will rise if money changes hands less frequently. 
C)  8. Velocity will rise if money changes hands more frequently. 
D)  8. Velocity will rise if money changes hands less frequently.

Question 2

Monetary neutrality means that a change in the money supply

Accepted Answer

A)  does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run. 
B)  does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. 
C)  does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run. 
D)  does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. 
A)  does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run. 
B)  does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. 
C)  does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run. 
D)  does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.

Question 3

The costs a business incurs to change its prices are called .

Accepted Answer

The answer of The costs a business incurs to change...

Question 4

People can reduce the inflation tax by

Accepted Answer

A)  reducing savings. 
B)  increasing deductions on their income tax. 
C)  reducing cash holdings. 
D)  None of the above is correct. 
A)  reducing savings. 
B)  increasing deductions on their income tax. 
C)  reducing cash holdings. 
D)  None of the above is correct.

Question 5

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 6

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 7

If the economy unexpectedly went from inflation to deflation,

Accepted Answer

A)  both debtors and creditors would have reduced real wealth. 
B)  both debtors and creditors would have increased real wealth. 
C)  debtors would gain at the expense of creditors. 
D)  creditors would gain at the expense of debtors. 
A)  both debtors and creditors would have reduced real wealth. 
B)  both debtors and creditors would have increased real wealth. 
C)  debtors would gain at the expense of creditors. 
D)  creditors would gain at the expense of debtors.

Question 8

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Accepted Answer

A)  lenders and people holding a lot of currency 
B)  lenders but not people holding a lot of currency 
C)  people holding a lot of currency but not lenders 
D)  neither lenders nor people holding a lot of currency 
A)  lenders and people holding a lot of currency 
B)  lenders but not people holding a lot of currency 
C)  people holding a lot of currency but not lenders 
D)  neither lenders nor people holding a lot of currency

Question 9

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.

Question 10

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A)  increase real GDP and the price level. 
B)  increase real GDP, but not the price level. 
C)  increase the price level, but not real GDP. 
D)  increase neither the price level nor real GDP. 
A)  increase real GDP and the price level. 
B)  increase real GDP, but not the price level. 
C)  increase the price level, but not real GDP. 
D)  increase neither the price level nor real GDP.

Question 11

In the last part of the 1800's

Accepted Answer

A)  deflation made it harder for farmers to pay off their debt. 
B)  deflation made it easier for farmers to pay off their debt. 
C)  inflation made it harder for farmers to pay off their debt. 
D)  inflation made it easier for farmers to pay off their debt. 
A)  deflation made it harder for farmers to pay off their debt. 
B)  deflation made it easier for farmers to pay off their debt. 
C)  inflation made it harder for farmers to pay off their debt. 
D)  inflation made it easier for farmers to pay off their debt.

Question 12

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Question 13

The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera the local currency) in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)  -20 percent 
B)  20 percent 
C)  42 percent 
D)  64 percent 
A)  -20 percent 
B)  20 percent 
C)  42 percent 
D)  64 percent

Question 14

For a given real interest rate, an increase in inflation makes the after-tax real interest rate

Accepted Answer

A)  decrease, which encourages savings. 
B)  decrease, which discourages savings. 
C)  increase, which encourages savings. 
D)  increase, which discourages savings. 
A)  decrease, which encourages savings. 
B)  decrease, which discourages savings. 
C)  increase, which encourages savings. 
D)  increase, which discourages savings.

Question 15

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. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph. 
A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph.

Question 16

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Accepted Answer

A)  the money supply must have increased, perhaps because the Fed bought bonds. 
B)  the money supply must have increased, perhaps because the Fed sold bonds. 
C)  the money supply must have decreased, perhaps because the Fed bought bonds. 
D)  the money supply must have decreased, perhaps because the Fed sold bonds. 
A)  the money supply must have increased, perhaps because the Fed bought bonds. 
B)  the money supply must have increased, perhaps because the Fed sold bonds. 
C)  the money supply must have decreased, perhaps because the Fed bought bonds. 
D)  the money supply must have decreased, perhaps because the Fed sold bonds.

Question 17

Velocity is computed as the

Accepted Answer

A)  price level times real GDP divided by the money supply. 
B)  price level times the money supply divided by real GDP. 
C)  real GDP times the money supply divided by the price level. 
D)  real GDP times the money supply divided by the rate at which money changes hands. 
A)  price level times real GDP divided by the money supply. 
B)  price level times the money supply divided by real GDP. 
C)  real GDP times the money supply divided by the price level. 
D)  real GDP times the money supply divided by the rate at which money changes hands.

Question 18

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Accepted Answer

A)  the money supply and the price level increase. 
B)  the money supply and the price level decrease. 
C)  the money supply increases and the price level decreases. 
D)  the money supply increases and the price level increases. 
A)  the money supply and the price level increase. 
B)  the money supply and the price level decrease. 
C)  the money supply increases and the price level decreases. 
D)  the money supply increases and the price level increases.

Question 19

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 20

According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to and real GDP to .

Accepted Answer

double, re

Exam 17: Money Growth and Inflation

If M = 12,000, P = 3, and Y = 32,000, then velocity =

Monetary neutrality means that a change in the money supply

The costs a business incurs to change its prices are called .

People can reduce the inflation tax by

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

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

If the economy unexpectedly went from inflation to deflation,

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

The velocity of money is

The principle of monetary neutrality implies that an increase in the money supply will

In the last part of the 1800's

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

For a given real interest rate, an increase in inflation makes the after-tax real interest rate

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. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Velocity is computed as the

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Which of the following is correct?

According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to and real GDP to .

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

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