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

The supply of money is determined by

Accepted Answer

A)  the price level. 
B)  the Treasury and Congressional Budget Office. 
C)  the Federal Reserve System. 
D)  the demand for money. 
A)  the price level. 
B)  the Treasury and Congressional Budget Office. 
C)  the Federal Reserve System. 
D)  the demand for money.

Question 3

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 4

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 5

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

Accepted Answer

A)  9 percent 
B)  2 percent 
C)  18 percent 
D)  3 percent 
A)  9 percent 
B)  2 percent 
C)  18 percent 
D)  3 percent

Question 6

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Accepted Answer

fallen, mo

Question 7

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  1.5 percent. 
B)  2.5 percent. 
C)  5.0 percent. 
D)  4.5 percent. 
A)  1.5 percent. 
B)  2.5 percent. 
C)  5.0 percent. 
D)  4.5 percent.

Question 8

If the CPI rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases, and so the value of money rises. 
B)  increases, and so the value of money falls. 
C)  decreases, and so the value of money rises. 
D)  decreases, and so the value of money falls 
A)  increases, and so the value of money rises. 
B)  increases, and so the value of money falls. 
C)  decreases, and so the value of money rises. 
D)  decreases, and so the value of money falls

Question 9

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)  increase employment. 
B)  increase the price level. 
C)  increase the incentive to save. 
D)  increase the real interest rate. 
A)  increase employment. 
B)  increase the price level. 
C)  increase the incentive to save. 
D)  increase the real interest rate.

Question 10

When inflation rises, firms make

Accepted Answer

A)  more frequent price changes. This raises their menu costs. 
B)  more frequent price changes. This reduces their menu costs. 
C)  less frequent price changes. This raises their menu costs. 
D)  less frequent price changes. This reduces their menu costs. 
A)  more frequent price changes. This raises their menu costs. 
B)  more frequent price changes. This reduces their menu costs. 
C)  less frequent price changes. This raises their menu costs. 
D)  less frequent price changes. This reduces their menu costs.

Question 11

If the price level increased from 200 to 250, then what was the inflation rate?

Accepted Answer

A)  50 percent 
B)  25 percent 
C)  20 percent 
D)  None of the above is correct. 
A)  50 percent 
B)  25 percent 
C)  20 percent 
D)  None of the above is correct.

Question 12

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Accepted Answer

A) True 
 B)False

Question 13

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A)  the real wage. 
B)  the real interest rate. 
C)  the nominal interest rate. 
D)  All of the above are correct. 
A)  the real wage. 
B)  the real interest rate. 
C)  the nominal interest rate. 
D)  All of the above are correct.

Question 14

The value of money rises as the price level

Accepted Answer

A)  rises, because the number of dollars needed to buy a representative basket of goods rises. 
B)  rises, because the number of dollars needed to buy a representative basket of goods falls. 
C)  falls, because the number of dollars needed to buy a representative basket of goods rises. 
D)  falls, because the number of dollars needed to buy a representative basket of goods falls. 
A)  rises, because the number of dollars needed to buy a representative basket of goods rises. 
B)  rises, because the number of dollars needed to buy a representative basket of goods falls. 
C)  falls, because the number of dollars needed to buy a representative basket of goods rises. 
D)  falls, because the number of dollars needed to buy a representative basket of goods falls.

Question 15

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A)  The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C)  The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D)  The nominal interest rate was 10 percent and the inflation rate was 4 percent. 
A)  The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C)  The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D)  The nominal interest rate was 10 percent and the inflation rate was 4 percent.

Question 16

Wealth is redistributed from debtors to creditors when inflation was expected to be

Accepted Answer

A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low. 
A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low.

Question 17

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 18

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th

Question 19

Figure 30-1  
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise. 
B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall. 
C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise. 
D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall. 
A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise. 
B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall. 
C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise. 
D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall.

Question 20

The idea of menu costs suggests that

Accepted Answer

A)  firms alter prices less frequently as inflation increases. 
B)  firms alter prices more frequently as inflation increases. 
C)  firms always alter prices when costs increase. 
D)  firms alter prices as interest rates rise. 
A)  firms alter prices less frequently as inflation increases. 
B)  firms alter prices more frequently as inflation increases. 
C)  firms always alter prices when costs increase. 
D)  firms alter prices as interest rates rise.

Exam 30: Money Growth and Inflation

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

The supply of money is determined by

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

The money demand curve shifts to the left when the Fed buys government bonds.

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

If the CPI rises, the number of dollars needed to buy a representative basket of goods

Monetary neutrality implies that an increase in the quantity of money will

When inflation rises, firms make

If the price level increased from 200 to 250, then what was the inflation rate?

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

According to the classical dichotomy, which of the following is influenced by monetary factors?

The value of money rises as the price level

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Wealth is redistributed from debtors to creditors when inflation was expected to be

The quantity theory of money

List and define any two of the costs of high inflation.

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

The idea of menu costs suggests that

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

Filters

Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

When the consumer price index increases, the value of your money has _. According to the quantity theory of money this is caused by an increase in the _.