Question 1

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 2

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Accepted Answer

The answer of Does an increase in the inflation rate...

Question 3

Other things the same, an increase in velocity means that

Accepted Answer

A)  the rate at which money changes hands falls, so the price level rises. 
B)  the rate at which money changes hands falls, so the price level falls. 
C)  the rate at which money changes hands rises, so the price level rises. 
D)  the rate at which money changes hands rises, so the price level falls.

Question 4

Over the last 80 years, the average annual U.S. inflation rate was about

Accepted Answer

A)  3.6 percent, implying that prices have increased 16-fold. 
B)  4 percent, implying that prices have increased 17-fold. 
C)  4 percent, implying that prices have increased 16-fold. 
D)  3.6 percent, implying that prices increased about 17-fold.

Question 5

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.

Question 6

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 7

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A)  decreases the price level by 2 percent. 
B)  decreases the price level by less than 2 percent. 
C)  increases the price level by less than 2 percent. 
D)  increases the price level by 2 percent.

Question 8

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Accepted Answer

A)  decrease that benefited creditors at the expense of debtors. 
B)  decrease that benefited debtors at the expense of creditors. 
C)  increase that benefited creditors at the expense of debtors. 
D)  increase that benefited debtors at the expense of creditors.

Question 9

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)  the value of money. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  the money supply.

Question 10

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  4.8 percent 
B)  5.4 percent 
C)  7.2 percent 
D)  4.2 percent.

Question 11

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 12

Other things the same, an increase in velocity means that

Accepted Answer

A)  transactions per dollar increase so the price level rises. 
B)  transactions per dollar increase so the price level falls. 
C)  transactions per dollar decrease so the price level rises. 
D)  transactions per dollar decrease so the price level falls.

Question 13

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

The answer of What direction of change in velocity could...

Question 14

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.

Question 15

Wealth is redistributed from creditors to debtors 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.

Question 16

Which of the following statements about inflation is correct?

Accepted Answer

A)  Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity. 
B)  People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality. 
C)  Nominal incomes are determined by nominal factors; they are not affected by real factors. 
D)  Inflation does not in itself reduce people's real purchasing power.

Question 17

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 18

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Accepted Answer

The answer of According to the Fisher effect, if the...

Question 19

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

Accepted Answer

A)  The real and nominal value of the wages you pay. 
B)  The real but not the nominal value of wages you pay. 
C)  The nominal but not the real value of the wages you pay. 
D)  Neither the real nor the nominal value of the wages you pay.

Question 20

Which of the following is correct? Inflation

Accepted Answer

A)  impedes financial markets in their role of allocating resources. 
B)  reduces the purchasing power of the average consumer. 
C)  generally increases after-tax real interest rates. 
D)  is most costly when anticipated.

Exam 12: Money Growth and Inflation

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

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Other things the same, an increase in velocity means that

Over the last 80 years, the average annual U.S. inflation rate was about

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

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

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

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

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

Other things the same, an increase in velocity means that

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

The quantity theory of money

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

Which of the following statements about inflation is correct?

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

Which of the following is correct? Inflation