Question 1

The term hyperinflation refers to

Accepted Answer

A)  the spread of inflation from one country to others. 
B)  a decrease in the inflation rate. 
C)  a period of very high inflation. 
D)  inflation accompanied by a recession. 
A)  the spread of inflation from one country to others. 
B)  a decrease in the inflation rate. 
C)  a period of very high inflation. 
D)  inflation accompanied by a recession.

Question 2

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

Accepted Answer

A)  $4,000. 
B)  $2,250. 
C)  $250. 
D)  $36,000. 
A)  $4,000. 
B)  $2,250. 
C)  $250. 
D)  $36,000.

Question 3

When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases?

Accepted Answer

A)  the quantity of money demanded and the quantity of money supplied 
B)  the quantity of money demanded but not the quantity of money supplied 
C)  the quantity of money supplied but not the quantity of money demanded 
D)  neither the quantity of money supplied nor the quantity of money demanded 
A)  the quantity of money demanded and the quantity of money supplied 
B)  the quantity of money demanded but not the quantity of money supplied 
C)  the quantity of money supplied but not the quantity of money demanded 
D)  neither the quantity of money supplied nor the quantity of money demanded

Question 4

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. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)  -43 percent 
B)  -57 percent 
C)  57 percent 
D)  75 percent 
A)  -43 percent 
B)  -57 percent 
C)  57 percent 
D)  75 percent

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

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 7

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 8

The primary reason people hold money is

Accepted Answer

A)  to keep wealth in a less liquid form. 
B)  to use it as a medium of exchange. 
C)  to use it for investment. 
D)  to earn interest. 
A)  to keep wealth in a less liquid form. 
B)  to use it as a medium of exchange. 
C)  to use it for investment. 
D)  to earn interest.

Question 9

In which case is velocity the highest?

Accepted Answer

A)  the price level equals 4, the money supply equals 5,000, and output equals 20,000. 
B)  the price level equals 4, the money supply equals 20,000 and output equals 5,000. 
C)  the price level equals 2, the money supply equals 5,000, and output equals 20,000. 
D)  the price level equals 2, the money supply equals 20,000 and output equals 5,000. 
A)  the price level equals 4, the money supply equals 5,000, and output equals 20,000. 
B)  the price level equals 4, the money supply equals 20,000 and output equals 5,000. 
C)  the price level equals 2, the money supply equals 5,000, and output equals 20,000. 
D)  the price level equals 2, the money supply equals 20,000 and output equals 5,000.

Question 10

When inflation rises, people

Accepted Answer

A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes. 
A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes.

Question 11

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

A)  the price level 
B)  real GDP 
C)  nominal interest rates 
D)  All of the above are correct. 
A)  the price level 
B)  real GDP 
C)  nominal interest rates 
D)  All of the above are correct.

Question 12

Inflation can be measured by the

Accepted Answer

A)  change in the consumer price index. 
B)  percentage change in the consumer price index. 
C)  percentage change in the price of a specific commodity. 
D)  change in the price of a specific commodity. 
A)  change in the consumer price index. 
B)  percentage change in the consumer price index. 
C)  percentage change in the price of a specific commodity. 
D)  change in the price of a specific commodity.

Question 13

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Accepted Answer

A) True 
 B)False

Question 14

Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money she holds?

Accepted Answer

A)  $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B)  $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
C)  15 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D)  15 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)  $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B)  $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
C)  15 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D)  15 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 15

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

Accepted Answer

A)  8. 
B)  0.5. 
C)  2. 
D)  3. 
A)  8. 
B)  0.5. 
C)  2. 
D)  3.

Question 16

In the long run, money demand and money supply determine

Accepted Answer

A)  the value of money and the real interest rate. 
B)  the value of money but not the real interest rate. 
C)  the real interest rate but not the value of money. 
D)  neither the value of money nor the real interest rate. 
A)  the value of money and the real interest rate. 
B)  the value of money but not the real interest rate. 
C)  the real interest rate but not the value of money. 
D)  neither the value of money nor the real interest rate.

Question 17

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A)  The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B)  The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C)  The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D)  The nominal interest rate was 6 percent and the inflation rate was 7.5 percent. 
A)  The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B)  The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C)  The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D)  The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.

Question 18

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Accepted Answer

A)  nominal income and real income increased. 
B)  nominal income increased, but their real income decreased. 
C)  nominal income and real income decreased. 
D)  nominal income decreased, but their real income increased. 
A)  nominal income and real income increased. 
B)  nominal income increased, but their real income decreased. 
C)  nominal income and real income decreased. 
D)  nominal income decreased, but their real income increased.

Question 19

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest

Question 20

Market economies rely on which of the following to allocate scarce resources?

Accepted Answer

A)  government 
B)  consumers 
C)  relative prices 
D)  real interest rates 
A)  government 
B)  consumers 
C)  relative prices 
D)  real interest rates

Exam 30: Money Growth and Inflation

The term hyperinflation refers to

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases?

Which of the following is not correct?

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

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

The primary reason people hold money is

In which case is velocity the highest?

When inflation rises, people

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Inflation can be measured by the

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money she holds?

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

In the long run, money demand and money supply determine

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Market economies rely on which of the following to allocate scarce resources?

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 Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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