Question 1

Suppose an economy produces only smart phones. If the price level falls, the value of currency

Accepted Answer

A)  ​rises, because one unit of currency buys more smart phones. This is called deflation.
B)  ​​rises, because one unit of currency buys more smart phones. This is called inflation.
C)  ​​falls, because one unit of currency buys fewer smart phones. This is called deflation.
D)  ​​falls, because one unit of currency buys fewer smart phones. This is called inflation.E) A) and B)
F) All of the above

Question 2

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

A decrease in veloci...

Question 3

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.E) C) and D)
F) B) and C)

Question 4

When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

Accepted Answer

A) True 
 B)False

Question 5

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)  Friedman Effect.
B)  Hume Effect.
C)  Fisher Effect.
D)  the inflation tax.E) B) and C)
F) A) and B)

Question 6

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Accepted Answer

A)  velocity concept.
B)  Fisher effect.
C)  classical dichotomy.
D)  Mankiw effect.E) All of the above
F) C) and D)

Question 7

As the price level decreases, the value of money

Accepted Answer

A)  increases, so people must hold less money to purchase goods and services.
B)  increases, so people must hold more money to purchase goods and services.
C)  decreases, so people must hold more money to purchase goods and services.
D)  decreases, so people must hold less money to purchase goods and services.E) A) and B)
F) All of the above

Question 8

The value of money rises as the price level

Accepted Answer

A)  rises, because the number of dollars needed to buy a representative basket of goods rises.
B)  rises, because the number of dollars needed to buy a representative basket of goods falls.
C)  falls, because the number of dollars needed to buy a representative basket of goods rises.
D)  falls, because the number of dollars needed to buy a representative basket of goods falls.E) All of the above
F) C) and D)

Question 9

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)  increase employment.
B)  increase the price level.
C)  increase the incentive to save.
D)  increase the real interest rate.E) B) and C)
F) A) and D)

Question 10

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.E) None of the above
F) All of the above

Question 11

Most economists believe that monetary neutrality provides

Accepted Answer

A)  a good description of both the long run and the short run.
B)  a good description of neither the long run nor the short run.
C)  a good description of the short run, but not the long run.
D)  a good description of the long run, but not the short run.E) B) and D)
F) B) and C)

Question 12

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

Question 13

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Accepted Answer

Higher inflation gives people ...

Question 14

The price level is a

Accepted Answer

A)  relative variable.
B)  dichotomous variable
C)  real variable.
D)  nominal variable.E) A) and D)
F) A) and C)

Question 15

The supply of money is determined by

Accepted Answer

A)  the price level.
B)  the Treasury and Congressional Budget Office.
C)  the Federal Reserve System.
D)  the demand for money.E) C) and D)
F) None of the above

Question 16

People can reduce the inflation tax by

Accepted Answer

A)  reducing savings.
B)  increasing deductions on their income tax.
C)  reducing cash holdings.
D)  None of the above is correct.E) C) and D)
F) B) and C)

Question 17

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 a(n) _____ in the price level.

Accepted Answer

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

Question 18

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)  excess demand for money that will result in an increase in spending.
B)  excess demand for money that will result in a decrease in spending.
C)  excess supply of money that will result in an increase in spending.
D)  excess supply of money that will result in a decrease in spending.E) A) and B)
F) All of the above

Question 19

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A)  The nominal interest rate was 10 percent and the inflation rate was 6 percent.
B)  The nominal interest rate was 6 percent and the inflation rate was 2 percent.
C)  The nominal interest rate was 4 percent and the inflation rate was 2 percent.
D)  The nominal interest rate was 10 percent and the inflation rate was 4 percent.E) A) and C)
F) A) and B)

Question 20

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

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

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Correct AnswerverifiedShow Answer

People can reduce the inflation tax by

Correct AnswerverifiedShow Answer

When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

Correct AnswerverifiedShow Answer

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Correct AnswerverifiedHigher inflation gives people ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

As the price level decreases, the value of money

Correct AnswerverifiedShow Answer

The value of money rises as the price level

Correct AnswerverifiedShow Answer

Most economists believe that monetary neutrality provides

Correct AnswerverifiedShow Answer

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedA decrease in veloci...View AnswerShow Answer

Monetary neutrality implies that an increase in the quantity of money will

Correct AnswerverifiedShow Answer

The price level is a

Correct AnswerverifiedShow Answer

Suppose an economy produces only smart phones. If the price level falls, the value of currency

Correct AnswerverifiedShow Answer

The supply of money is determined by

Correct AnswerverifiedShow Answer

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

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 a(n) _____ in the price level.

Correct AnswerverifiedShow Answer

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Higher inflation gives people ...
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A decrease in veloci...
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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 a(n) _ in the price level.

Correct Answer
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