Question 1

If Y and V are constant and M doubles, the quantity equation implies that the price level

Accepted Answer

A)   more than doubles.
B)   changes but less than doubles.
C)   doubles.
D)   does not changeE) C) and D)
F) None of the above

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

Open marke...

Question 4

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases, there i...

Question 5

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 6

If inflation is higher 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.E) A) and D)
F) C) and D)

Question 7

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 8

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

Accepted Answer

A)   4 percent
B)   6 percent
C)   8 percent
D)   10 percentE) A) and D)
F) A) and C)

Question 9

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A)   is irrelevant for understanding the determinants of nominal and real variables.
B)   determines nominal variables, but not real variables.
C)   determines real variables, but not nominal variables.
D)   is a determinant of both real and nominal variables.E) A) and B)
F) A) and D)

Question 10

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 nominal interest rates.
B)   the inflation rate, but not nominal interest rates.
C)   nominal interest rates, but not the inflation rate.
D)   neither the inflation rate nor nominal interest rates.E) A) and D)
F) None of the above

Question 11

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.E) None of the above
F) B) and D)

Question 12

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 13

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.E) A) and B)
F) A) and C)

Question 14

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.E) A) and B)
F) A) and C)

Question 15

If the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?

Accepted Answer

The value ...

Question 16

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 17

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.E) None of the above
F) A) and D)

Question 18

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Accepted Answer

A)   the supply of money decreases and the value of money rises.
B)   the supply of money increases and the value of money falls.
C)   the demand for money increases and the value of money rises.
D)   the demand for money decreases and the value of money falls.E) A) and B)
F) A) and C)

Question 19

Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result,

Accepted Answer

A)   The number of dollars you receive increases and the purchasing power of the dollars you receive increases.
B)   The number of dollars you receive increases and the purchasing power of the dollars you receive decreases.
C)   The number of dollars you receive decreases and the purchasing power of the dollars you receive increases.
D)   The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases.E) C) and D)
F) A) and C)

Question 20

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A)   the inflation tax.
B)   menu costs.
C)   the inflation fallacy.
D)   shoeleather costs.E) C) and D)
F) A) and D)

Exam 22: Money Growth and Inflation

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

Correct AnswerverifiedShow Answer

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Correct AnswerverifiedWhen the money supply increases, there i...View AnswerShow Answer

The Fisher effect

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If inflation is higher than what was expected,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The classical dichotomy refers to the idea that the supply of money

Correct AnswerverifiedShow Answer

The idea that inflation by itself reduces people's purchasing power is called

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

If the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?

Correct AnswerverifiedThe value ...View AnswerShow Answer

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Correct AnswerverifiedShow Answer

If Y and V are constant and M doubles, the quantity equation implies that the price level

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

If money demand shifts right, the price level falls.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Correct AnswerverifiedOpen marke...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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When the money supply increases, there i...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct 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.

Correct Answer
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Correct Answer
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The value ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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P = MV/Y. With the numbers giv...
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Correct Answer
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Correct Answer
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Correct Answer
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Open marke...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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