Question 1

Suppose over some period of time the money supply tripled, velocity fell by half, 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 B)
F) A) and C)

Question 2

Suppose the money supply tripled, but at the same time velocity fell by half 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 B)
F) A) and C)

Question 3

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)   both the classical dichotomy and the quantity theory of money.
B)   the classical dichotomy, but not the quantity theory of money.
C)   the quantity theory of money, but not the classical dichotomy.
D)   neither the classical dichotomy nor the quantity theory of money.E) B) and C)
F) A) and B)

Question 4

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A)   mean that only real interest earnings are taxed.
B)   mean an end to taxing capital gains.
C)   mean an increase in average tax rates.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 5

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds, th...

Question 6

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

Accepted Answer

A)   Y or V rise
B)   Y or V fall
C)   Y rises or V falls
D)   Y falls or V risesE) B) and C)
F) A) and D)

Question 7

The classical theory of inflation

Accepted Answer

A)   is also known as the quantity theory of money.
B)   was developed by some of the earliest economic thinkers.
C)   is used by most modern economists to explain the long-run determinants of the inflation rate.
D)   All of the above are correct.E) C) and D)
F) A) and C)

Question 8

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 9

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Accepted Answer

A)   the price level grew at about the same rate as the money supply.
B)   the price level grew at a much faster rate than the money supply.
C)   the price level grew at a much slower rate than the money supply.
D)   the inflation rate and the money supply growth rate do not appear to be related.E) A) and B)
F) B) and C)

Question 10

The data on hyperinflation show a clear link between the quantity of money and

Accepted Answer

A)   the price level.
B)   growth rate of GDP.
C)   unemployment rate.
D)   velocity.E) All of the above
F) B) and C)

Question 11

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

Accepted Answer

A)   the price level
B)   nominal wages
C)   nominal GDP
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 12

Figure 12-3. 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 price level is A)  0.5 and the equilibrium value of money is 2. B)  2 and the equilibrium value of money is 0.5. C)  0.5 and the equilibrium value of money cannot be determined from the graph. D)  2 and the equilibrium value of money cannot be determined from the graph. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-3. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

Accepted Answer

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

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   3.4 percent
B)   1.6 percent
C)   1.0 percent
D)   None of the above is correct.E) All of the above
F) None of the above

Question 15

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Accepted Answer

A)   .03(1-.20) 
B)   .04(1 -.20) 
C)   .04(1 - .20)  - .01
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 16

According to the quantity theory of money, a 3 percent increase in the money supply

Accepted Answer

A)   causes the price level to rise by 3 percent.
B)   causes the price level to rise by less than 3 percent.
C)   leaves the price level unchanged.
D)   causes the price level to fall by 3 percent.E) B) and C)
F) None of the above

Question 17

Suppose over some period of time the money supply tripled, velocity was unchanged, 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 valueE) All of the above
F) A) and B)

Question 18

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 real interest rates.
B)   the inflation rate, but not real interest rates.
C)   real interest rates, but not the inflation rate.
D)   neither the inflation rate nor real interest rates.E) A) and D)
F) All of the above

Question 19

As the price level falls, the value of money falls.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 12: Money Growth and Inflation

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

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

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Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-3. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

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

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

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When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

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

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The data on hyperinflation show a clear link between the quantity of money and

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The classical theory of inflation

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

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Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Correct AnswerverifiedShow Answer

According to the quantity theory of money, a 3 percent increase in the money supply

Correct AnswerverifiedShow Answer

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds, th...View AnswerShow 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

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

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The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

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As the price level falls, the value of money falls.

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You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

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

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Indexing the tax system to take into account the effects of inflation would by itself

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Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-3. If the relevant money-supply curve is the one labeled MS₁, then the equilibrium price level is

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When the Fed sells government bonds, th...
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We must suppose that V is rela...
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Correct Answer
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