Question 1

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Question 2

What two key assumptions does the quantity theory make concerning variables in the equation of exchange?

Accepted Answer

That V is

Question 3

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Accepted Answer

A)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B)  8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
C)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
D)  8 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)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B)  8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
C)  $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
D)  8 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 4

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 5

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

Accepted Answer

The answer of It takes more money to purchase the...

Question 6

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

Accepted Answer

A)  increases the price level and increases the value of money. 
B)  increases the price level and decreases the value of money. 
C)  decreases the price level and increases the value of money. 
D)  decreases the price level and decreases the value of money. 
A)  increases the price level and increases the value of money. 
B)  increases the price level and decreases the value of money. 
C)  decreases the price level and increases the value of money. 
D)  decreases the price level and decreases the value of money.

Question 7

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Accepted Answer

A)  Y or V rise 
B)  Y or V fall 
C)  Y rises or V falls 
D)  Y falls or V rises 
A)  Y or V rise 
B)  Y or V fall 
C)  Y rises or V falls 
D)  Y falls or V rises

Question 8

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)  decreased. Other things the same, a decrease in velocity decreases the price level. 
B)  decreased. Other things the same, a decrease in velocity increases the price level. 
C)  increased. Other things the same, an increase in velocity decreases the price level. 
D)  increased. Other things the same, an increase in velocity increases the price level. 
A)  decreased. Other things the same, a decrease in velocity decreases the price level. 
B)  decreased. Other things the same, a decrease in velocity increases the price level. 
C)  increased. Other things the same, an increase in velocity decreases the price level. 
D)  increased. Other things the same, an increase in velocity increases the price level.

Question 9

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Accepted Answer

A) True 
 B)False

Question 10

When the money market is drawn with the value of money on the vertical axis, the value of money decreases if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 11

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

Accepted Answer

A)  0.167. 
B)  1. 
C)  4. 
D)  36. 
A)  0.167. 
B)  1. 
C)  4. 
D)  36.

Question 12

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 13

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Accepted Answer

The answer of You hear an economist state the following:...

Question 14

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Accepted Answer

A)  increases the price level by more than 4 percent. 
B)  increases the price level by 4 percent. 
C)  increases the price level by less than 4 percent. 
D)  increases real GDP by 4 percent. 
A)  increases the price level by more than 4 percent. 
B)  increases the price level by 4 percent. 
C)  increases the price level by less than 4 percent. 
D)  increases real GDP by 4 percent.

Question 15

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

Accepted Answer

A)  inflation averaged 8% per year and the real rate of return was 9%. 
B)  inflation averaged 11% per year and the real rate of return was 17%. 
C)  inflation averaged 5% per year and the real rate of return was 4%. 
D)  inflation averaged 1% per year and the real rate of return was 6%. 
A)  inflation averaged 8% per year and the real rate of return was 9%. 
B)  inflation averaged 11% per year and the real rate of return was 17%. 
C)  inflation averaged 5% per year and the real rate of return was 4%. 
D)  inflation averaged 1% per year and the real rate of return was 6%.

Question 16

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 17

Which of the following statements about U.S. inflation is not correct?

Accepted Answer

A)  Low inflation was viewed as a triumph of President Carter's economic policy. 
B)  There were long periods in the nineteenth century during which prices fell. 
C)  The U.S. public has viewed inflation rates of even 7 percent as a major economic problem. 
D)  The U.S. inflation rate has varied over time, but international data show even more variation. 
A)  Low inflation was viewed as a triumph of President Carter's economic policy. 
B)  There were long periods in the nineteenth century during which prices fell. 
C)  The U.S. public has viewed inflation rates of even 7 percent as a major economic problem. 
D)  The U.S. inflation rate has varied over time, but international data show even more variation.

Question 18

Which of the following is not implied by the quantity equation?

Accepted Answer

A)  If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. 
B)  If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C)  With constant money supply and output, an increase in velocity creates an increase in the price level. 
D)  With constant money supply and velocity, an increase in output creates a proportional increase in the price level. 
A)  If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. 
B)  If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C)  With constant money supply and output, an increase in velocity creates an increase in the price level. 
D)  With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

Question 19

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Accepted Answer

A)  both the nominal and the real interest rate fall. 
B)  neither the nominal nor the real interest rate fall. 
C)  the nominal interest rate falls, but the real interest rate does not. 
D)  the real interest rate falls, but the nominal interest rate does not. 
A)  both the nominal and the real interest rate fall. 
B)  neither the nominal nor the real interest rate fall. 
C)  the nominal interest rate falls, but the real interest rate does not. 
D)  the real interest rate falls, but the nominal interest rate does not.

Question 20

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

Accepted Answer

A)  when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. 
B)  when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. 
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.375. 
D)  All of the above are correct. 
A)  when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. 
B)  when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. 
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.375. 
D)  All of the above are correct.

Exam 30: Money Growth and Inflation

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

What two key assumptions does the quantity theory make concerning variables in the equation of exchange?

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

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 _____.

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

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

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

When the money market is drawn with the value of money on the vertical axis, the value of money decreases if

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

Which of the following statements about U.S. inflation is not correct?

Which of the following is not implied by the quantity equation?

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

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

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

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

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 ___.

It takes more money to purchase the same amount of goods when prices _. Therefore, the value of your money has .