Question 1

If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?

Accepted Answer

P = MV/Y. With the numbers giv...

Question 2

Figure 30-1 
-Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the equilibrium value of money decreases.
B)   the equilibrium price level decreases.
C)   the supply of money has decreased.
D)   the demand for goods and services will decrease.

Question 3

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who save than for those who borrow.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
D)   for savers in low income tax brackets than for savers in high income tax brackets.

Question 4

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

Accepted Answer

A)   both the price level and nominal GDP would rise by 5 percent.
B)   the price level would rise by 5 percent and nominal GDP would be unchanged.
C)   the price level would be unchanged and nominal GDP would rise by 5 percent.
D)   both the price level and nominal GDP would be unchanged.

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. What quantity is measured along the horizontal axis?

Accepted Answer

A)   the price level
B)   the real interest rate
C)   the value of money
D)   the quantity of money

Question 6

During the 1970's, U.S. inflation averaged 7% each year and real GDP increased. Holding velocity constant and using the Quantity Equation, we conclude that

Accepted Answer

A)   money growth must have been greater than the growth of real income.
B)   money growth must have been less than the growth of real income.
C)   prices fell during the 1970's.
D)   output fell during the 1970's.

Question 7

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

Accepted Answer

A)   nominal wages
B)   unemployment
C)   real GDP
D)   All of the above are correct.

Question 8

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

Accepted Answer

A)   the price level and nominal wages
B)   the price level, but not the nominal wage
C)   the nominal wage, but not the price level
D)   neither the nominal wage nor the price level

Question 9

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

Accepted Answer

A)   both the price level and real GDP would rise by 5 percent.
B)   the price level would rise by 5 percent and real GDP would be unchanged.
C)   the price level would be unchanged and real GDP would rise by 5 percent.
D)   both the price level and real GDP would be unchanged.

Question 10

In the U.S., from the early 1980s through the early 1990s,

Accepted Answer

A)   both inflation and nominal interest rates rose.
B)   both inflation and nominal interest rates fell.
C)   the inflation rate fell and the nominal interest rate rose.
D)   the inflation rate rose and the nominal interest rate fell.

Question 11

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False

Question 12

If inflation is lower than what was expected,

Accepted Answer

A)   creditors receive a lower real interest rate than they had anticipated.
B)   creditors pay a lower real interest rate than they had anticipated.
C)   debtors receive a higher real interest rate than they had anticipated.
D)   debtors pay a higher real interest rate than they had anticipated.

Question 13

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 14

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Accepted Answer

A)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
B)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
C)   your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
D)   your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

Question 15

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.

Question 16

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Accepted Answer

A) True 
 B)False

Question 17

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 18

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Accepted Answer

A)   Nominal and real tuition were both higher in 1975.
B)   Nominal and real tuition were both higher in 2011.
C)   Nominal tuition was higher in 1975, real tuition was higher in 2011.
D)   Nominal tuition was higher in 2011, real tuition was higher in 1975.

Question 19

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through an) _____ in the price level.

Accepted Answer

The answer of When the Federal Reserve injects money into...

Question 20

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.

Exam 12: Money Growth and Inflation

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

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Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Correct AnswerverifiedShow Answer

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

Correct AnswerverifiedShow Answer

In the U.S., from the early 1980s through the early 1990s,

Correct AnswerverifiedShow Answer

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through an) _____ in the price level.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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If inflation is lower than what was expected,

Correct AnswerverifiedShow Answer

During the 1970's, U.S. inflation averaged 7% each year and real GDP increased. Holding velocity constant and using the Quantity Equation, we conclude that

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If money demand shifts right, the price level falls.

Correct AnswerverifiedShow Answer

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Correct AnswerverifiedShow Answer

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

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High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

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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. What quantity is measured along the horizontal axis?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?

Correct AnswerverifiedP = MV/Y. With the numbers giv...View AnswerShow Answer

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When the Federal Reserve injects money into the banking system, it initially causes an excess _ of money. Equilibrium in the money market is reestablished through an) _ in the price level.

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P = MV/Y. With the numbers giv...
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