Question 1

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) A) and C)
F) A) and B)

Question 2

Suppose ice cream cones costs $3.Molly holds $60.What is the real value of the money she holds?

Accepted Answer

A)   $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold more dollars.
B)   $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold fewer dollars.
C)   20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold more dollars.
D)   20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold fewer dollars.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

A)   both the nominal and the real interest rate rise.
B)   neither the nominal nor the real interest rate rise.
C)   the nominal interest rate rises,but the real interest rate does not.
D)   the real interest rate rises,but the nominal interest rate does not.E) B) and C)
F) A) and D)

Question 4

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) A) and B)
F) A) and C)

Question 5

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 6

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) B) and C)
F) A) and D)

Question 7

Money demand refers to

Accepted Answer

A)   the total quantity of financial assets that people want to hold.
B)   how much income people want to earn per year.
C)   how much wealth people want to hold in liquid form.
D)   how much currency the Federal Reserve decides to print.E) B) and D)
F) A) and B)

Question 8

For a given real interest rate,a decrease in the inflation rate would

Accepted Answer

A)   decrease the after-tax real interest rate and so decrease saving.
B)   decrease the after-tax real interest rate and so increase saving.
C)   increase the after-tax real interest rate and so decrease saving.
D)   increase the after-tax real interest rate and so increase saving.E) A) and C)
F) A) and D)

Question 9

There was hyperinflation during the

Accepted Answer

A)   period 1880-1896 in the United States.
B)   1970s in the United States.
C)   early part of the current century in Zimbabwe.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 10

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

We must suppose that V is rela...

Question 11

Over the past 70 years,prices in the U.S.have risen on average about

Accepted Answer

A)   2 percent per year.
B)   4 percent per year.
C)   6 percent per year.
D)   8 percent per year.E) None of the above
F) B) and C)

Question 12

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

Accepted Answer

A) True 
 B)False

Question 13

The shoeleather cost of inflation refers to

Accepted Answer

A)   the redistributional effects of unexpected inflation.
B)   the time spent searching for low prices when inflation rises.
C)   the waste of resources used to maintain lower money holdings.
D)   the increased cost to the government of printing more money.E) B) and C)
F) A) and B)

Question 14

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 is...

Question 15

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply

Accepted Answer

A)   increases the price level and increases the value of money.
B)   increases the price level and decreases the value of money.
C)   decreases the price level and increases the value of money.
D)   decreases the price level and decreases the value of money.E) None of the above
F) B) and C)

Question 16

Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1,then the equilibrium value of money is A)  0.5 and the equilibrium price level is 2. B)  2 and the equilibrium price level is 0.5. C)  0.5 and the equilibrium price level cannot be determined from the graph. D)  2 and the equilibrium price level cannot be determined from the graph." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-2.If the relevant money-demand curve is the one labeled MD1,then the equilibrium value of money is

Accepted Answer

A)   0.5 and the equilibrium price level is 2.
B)   2 and the equilibrium price level is 0.5.
C)   0.5 and the equilibrium price level cannot be determined from the graph.
D)   2 and the equilibrium price level cannot be determined from the graph.E) B) and C)
F) All of the above

Question 17

In the fourteenth century,the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold,which was in use as a medium of exchange.We would predict that this increase in gold

Accepted Answer

A)   raised both the price level and the value of gold in Cairo.
B)   raised the price level,but decreased the value of gold in Cairo.
C)   lowered the price level,but increased the value of gold in Cairo.
D)   lowered both the price level and the value of gold in Cairo.E) None of the above
F) All of the above

Question 18

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)   the quantity theory and evidence from four hyperinflations during the 1920's
B)   the quantity theory but not evidence from four hyperinflations during the 1920's
C)   evidence from four hyperinflations during the 1920's but not the quantity theory
D)   neither the quantity theory nor evidence from four hyperinflation during the 1920'sE) B) and C)
F) C) and D)

Question 19

For a given real interest rate,an increase in inflation makes the after-tax real interest rate

Accepted Answer

A)   decrease,which encourages savings.
B)   decrease,which discourages savings.
C)   increase,which encourages savings.
D)   increase,which discourages savings.E) B) and C)
F) A) and B)

Question 20

Which of the following is correct?

Accepted Answer

A)   The Continental Congress used the inflation tax to help finance the American Revolution.
B)   The inflation is today a principal source of revenue for the U.S.government.
C)   There is no way a person can avoid the inflation tax.
D)   None of the above is correct.E) A) and B)
F) B) and D)

Exam 22: Money Growth and Inflation

Which of the following is correct?

Correct AnswerverifiedShow Answer

People can reduce the inflation tax by

Correct AnswerverifiedShow Answer

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

Correct AnswerverifiedShow Answer

In the fourteenth century,the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold,which was in use as a medium of exchange.We would predict that this increase in gold

Correct AnswerverifiedShow Answer

For a given real interest rate,an increase in inflation makes the after-tax real interest rate

Correct AnswerverifiedShow Answer

Over the past 70 years,prices in the U.S.have risen on average about

Correct AnswerverifiedShow Answer

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Correct AnswerverifiedWe must suppose that V is rela...View AnswerShow Answer

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct AnswerverifiedShow Answer

Money demand refers to

Correct AnswerverifiedShow Answer

For a given real interest rate,a decrease in the inflation rate would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply

Correct AnswerverifiedShow Answer

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

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 is...View AnswerShow Answer

There was hyperinflation during the

Correct AnswerverifiedShow Answer

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Correct AnswerverifiedShow Answer

Suppose ice cream cones costs $3.Molly holds $60.What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The shoeleather cost of inflation refers to

Correct AnswerverifiedShow Answer

Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-2.If the relevant money-demand curve is the one labeled MD1,then the equilibrium value of money is

Correct AnswerverifiedShow Answer

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We must suppose that V is rela...
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When the money supply increases,there is...
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Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-2.If the relevant money-demand curve is the one labeled MD₁,then the equilibrium value of money is

Correct Answer
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