Question 1

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A)  is 1.5 times its old value.
B)  is 3 times its old value.
C)  is 6 times its old value.
D)  is the same as its old value.E) A) and D)
F) A) and C)

Question 2

Most economists believe the principle of monetary neutrality is

Accepted Answer

A)  relevant to both the short and long run.
B)  irrelevant to both the short and long run.
C)  mostly relevant to the short run.
D)  mostly relevant to the long run.E) A) and D)
F) C) and D)

Question 3

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 4

In which case below is the real interest rate the highest?

Accepted Answer

A)  the nominal interest rate = 1% and inflation = 3%
B)  the nominal interest rate = 6% and inflation = 4%
C)  the nominal interest rate = 2% and inflation = -1%
D)  the nominal interest rate = 2% and inflation = 1%E) C) and D)
F) All of the above

Question 5

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)  6 times its old value.
B)  3 times its old value.
C)  1.5 times its old value.
D)  0.75 times its old value.E) A) and D)
F) All of the above

Question 6

When deflation exists,

Accepted Answer

A)  the real interest rate is less than the nominal interest rate.
B)  the real interest rate is greater than the nominal interest rate.
C)  the real interest rate and inflation are less than the nominal interest rate.
D)  prices rise.E) A) and B)
F) A) and C)

Question 7

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A)  increase real GDP and the price level.
B)  increase real GDP, but not the price level.
C)  increase the price level, but not real GDP.
D)  increase neither the price level nor real GDP.E) B) and D)
F) A) and B)

Question 8

The price level rises if either

Accepted Answer

A)  money demand or money supply shifts rightward.
B)  money demand shifts rightward or money supply shifts leftward.
C)  money demand shifts leftward or money supply shifts rightward.
D)  money demand or money supply shifts leftward.E) A) and D)
F) A) and B)

Question 9

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

Accepted Answer

A)  money demand shifts right and decreases if money supply shifts right.
B)  money demand shifts right and decreases if money supply shifts left.
C)  money demand shifts left and decreases if money supply shifts right.
D)  money demand shifts left and decreases if money supply shifts left.E) A) and B)
F) B) and D)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 13

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

Accepted Answer

A)  real GDP
B)  unemployment
C)  nominal interest rates
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 14

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Accepted Answer

A)  Y or V rise
B)  Y or V fall
C)  Y rises or V falls
D)  Y falls or V risesE) A) and D)
F) None of the above

Question 15

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

Accepted Answer

A)  demanded increases.
B)  demanded decreases.
C)  supplied increases.
D)  supplied decreases.E) B) and C)
F) A) and D)

Question 16

In the U.S., taxes on capital gains are computed using

Accepted Answer

A)  nominal gains. This is one way by which higher inflation discourages saving.
B)  nominal gains. This is one way by which higher inflation encourages saving.
C)  real gains. This is one way by which higher inflation discourages saving.
D)  real gains. This is one way by which higher inflation encourages saving.E) A) and D)
F) A) and B)

Question 17

In the 1970s, the U.S. inflation rate reached about

Accepted Answer

A)  7 percent per year.
B)  10 percent per year.
C)  14 percent per year.
D)  20 percent per year.E) B) and C)
F) All of the above

Question 18

Printing money to finance government expenditures

Accepted Answer

A)  causes the value of money to rise.
B)  imposes a tax on everyone who holds money.
C)  is the principal method by which the U.S. government finances its expenditures.
D)  causes prices to fall.E) A) and B)
F) None of the above

Question 19

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1 to MD2? A) an increase in the value of money B) a decrease in the price level C) an open-market purchase of bonds by the Federal Reserve D) None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  an increase in the value of money
B)  a decrease in the price level
C)  an open-market purchase of bonds by the Federal Reserve
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 20

When inflation rises, people will desire to hold

Accepted Answer

A)  less money and will go to the bank less frequently.
B)  less money and will go to the bank more frequently.
C)  more money and will go to the bank less frequently.
D)  more money and will go to the bank more frequently.E) B) and C)
F) C) and D)

Exam 30: Money Growth and Inflation

When inflation rises, people will desire to hold

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

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Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Correct AnswerverifiedShow Answer

Most economists believe the principle of monetary neutrality is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct AnswerverifiedShow Answer

Printing money to finance government expenditures

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In which case below is the real interest rate the highest?

Correct AnswerverifiedShow Answer

In the 1970s, the U.S. inflation rate reached about

Correct AnswerverifiedShow Answer

In the U.S., taxes on capital gains are computed using

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Correct AnswerverifiedShow Answer

The principle of monetary neutrality implies that an increase in the money supply will

Correct AnswerverifiedShow Answer

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Correct AnswerverifiedShow Answer

The price level rises if either

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

Correct AnswerverifiedShow Answer

When deflation exists,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

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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. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

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Inflation and nominal interest...
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