Question 1

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.

Question 2

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

Accepted Answer

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

Question 3

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.

Question 4

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Accepted Answer

A) the inflation rate and the nominal interest rate by the same number of percentage points. 
B) nominal interest rates but by less than the percentage point increase in the inflation rate. 
C) the inflation rate but not the nominal interest. 
D) neither the inflation rate nor the nominal interest rate.

Question 5

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.

Question 6

The Fisher effect

Accepted Answer

A) says the government can generate revenue by printing money. 
B) says there is a one for one adjustment of the nominal interest rate to the inflation rate. 
C) explains how higher money supply growth leads to higher inflation. 
D) explains how prices adjust to obtain equilibrium in the money market.

Question 7

When the price level falls,the number of dollars needed to buy a representative basket of goods

Accepted Answer

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

Question 8

On a given morning,Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Accepted Answer

A) The $80 is a real variable.The quantity of shoes is a nominal variable. 
B) The $80 is a nominal variable.The quantity of shoes is a real variable. 
C) Both the $80 and the quantity of shoes are nominal variables. 
D) Both the $80 and the quantity of shoes are real variables.

Question 9

When the money market is drawn with the value of money on the vertical axis,if the price level is above 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.

Question 10

When inflation rises people will

Accepted Answer

A) demand more money so the price level rises. 
B) demand more money so the price level falls. 
C) demand less money so the price level rises. 
D) demand less money so the price level falls.

Question 11

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

Accepted Answer

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

Question 12

When the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A) nominal interest rates. 
B) real interest rates. 
C) the price level. 
D) the money supply.

Question 13

In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

Accepted Answer

A) selling bonds on the open market,which would have raised the value of money. 
B) purchasing bonds on the open market,which would have raised the value of money. 
C) selling bonds on the open market,which would have raised the value of money 
D) purchasing bonds on the open market,which would have lowered the value of money

Question 14

A decrease in the money supply creates an excess

Accepted Answer

A) supply of money that is eliminated by rising prices. 
B) supply of money that is eliminated by falling prices. 
C) demand for money that is eliminated by rising prices. 
D) demand for money that is eliminated by falling prices.

Question 15

When the price level 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

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.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

Question 17

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.

Question 18

The classical theory of inflation

Accepted Answer

A) is also known as the quantity theory of money. 
B) was developed by some of the earliest economic thinkers. 
C) is used by most modern economists to explain the long-run determinants of the inflation rate. 
D) All of the above are correct.

Question 19

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

Accepted Answer

A) right,lowering the price level. 
B) right,raising the price level. 
C) left,raising the price level. 
D) left,lowering the price level.

Question 20

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.

Exam 17: Money Growth and Inflation: The Classical Theory of Inflation

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

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

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

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

The Fisher effect

When the price level falls,the number of dollars needed to buy a representative basket of goods

On a given morning,Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

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

When inflation rises people will

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

When the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

A decrease in the money supply creates an excess

When the price level rises,the number of dollars needed to buy a representative basket of goods

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

The classical theory of inflation

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

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

Exam 17: Money Growth and Inflation: The Classical Theory of Inflation

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

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

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

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

The Fisher effect

When the price level falls,the number of dollars needed to buy a representative basket of goods

On a given morning,Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

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

When inflation rises people will

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

When the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

In the 1970s,in response to recessions caused by an increase in the price of oil,the central banks in many countries increased their money supplies.The central banks might have done this by

A decrease in the money supply creates an excess

When the price level rises,the number of dollars needed to buy a representative basket of goods

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

The classical theory of inflation

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

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 the equilibrium value of money is