Question 1

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

Question 2

When the price level rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)   increases, and so the value of money rises.
B)   increases, and so the value of money falls.
C)   decreases, and so the value of money rises.
D)   decreases, and so the value of money fallsE) A) and C)
F) All of the above

Question 3

If the CPI rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)   increases, and so the value of money rises.
B)   increases, and so the value of money falls.
C)   decreases, and so the value of money rises.
D)   decreases, and so the value of money fallsE) B) and C)
F) All of the above

Question 4

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)   nominal and real GDP would fall by 7 percent.
B)   nominal GDP would fall by 7 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would fall by 7 percent.
D)   neither nominal GDP nor real GDP would change.E) B) and D)
F) B) and C)

Question 5

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 growth of real GDP.
B)   the inflation rate but not the growth rate of real GDP.
C)   the growth rate of real GDP, but not the inflation rate.
D)   neither the inflation rate nor the growth rate of real GDP.E) C) and D)
F) A) and C)

Question 6

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 7

If M = 4,000, P = 1.5, and Y= 6,000, what is velocity?

Accepted Answer

A)   2.25
B)   3.00
C)   6.50
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 8

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)   Inflation is 5 percent; the tax rate is 20 percent.
B)   Inflation is 4 percent; the tax rate is 30 percent.
C)   Inflation is 3 percent; the tax rate is 40 percent.
D)   The after-tax real interest rate is the same for all of the above.E) All of the above
F) A) and C)

Question 9

Inflation is costly only if it is unanticipated.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is correct?

Accepted Answer

A)   The classical dichotomy separates real and nominal variables.
B)   Monetary neutrality is the proposition that changes in the money supply do not change real variables.
C)   When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 11

When inflation rises, the nominal interest rate

Accepted Answer

A)   rises, and people desire to hold more money.
B)   rises, and people desire to hold less money.
C)   falls, and people desire to hold more money.
D)   falls, and people desire to hold less moneyE) All of the above
F) None of the above

Question 12

The value of money falls 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) A) and D)
F) None of the above

Question 13

Velocity is computed as

Accepted Answer

A)   (P Y) /M.
B)   (P M) /Y.
C)   (Y M) /P.
D)   (Y M) /V.E) B) and C)
F) All of the above

Question 14

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 2; also suppose the economy's real GDP is 45,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately A)  4.5 B)  6.0 C)  9.0 D)  12.0 " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-3. Suppose the relevant money-supply curve is the one labeled MS2; also suppose the economy's real GDP is 45,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately

Accepted Answer

A)   4.5
B)   6.0
C)   9.0
D)   12.0E) A) and C)
F) A) and D)

Question 15

During the recent financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)   decreased. Other things the same, a decrease in velocity decreases the price level.
B)   decreased. Other things the same, a decrease in velocity increases the price level.
C)   increased. Other things the same, an increase in velocity decreases the price level.
D)   increased. Other things the same, an increase in velocity increases the price level.E) All of the above
F) B) and C)

Question 16

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 17

The costs of changing price tags and price listings are known as

Accepted Answer

A)   inflation-induced tax distortions.
B)   relative-price variability costs.
C)   shoeleather costs.
D)   menu costs.E) None of the above
F) A) and B)

Question 18

The price level is a

Accepted Answer

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

Question 19

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

Accepted Answer

A)   the price level and nominal GDP
B)   the price level and real GDP
C)   only real GDP
D)   only the price levelE) A) and C)
F) B) and C)

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 12: Money Growth and Inflation

When the price level rises, the number of dollars needed to buy a representative basket of goods

Correct Answer
verified

An increase in money demand would create a surplus of money at the original value of money.

Correct Answer
verified

When inflation rises, the nominal interest rate

Correct Answer
verified

The price level is a

Correct Answer
verified

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

Correct Answer
verified

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct Answer
verified

During the recent financial crisis velocity decreased. This means that the rate at which money changed hands

Correct Answer
verified

The costs of changing price tags and price listings are known as

Correct Answer
verified

If the CPI rises, the number of dollars needed to buy a representative basket of goods

Correct Answer
verified

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

Correct Answer
verified

The value of money falls as the price level

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Correct Answer
verified

If M = 4,000, P = 1.5, and Y= 6,000, what is velocity?

Correct Answer
verified

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Correct Answer
verified

Velocity is computed as

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

An excess supply of money is eliminated by a falling price level

Correct Answer
verified

Inflation is costly only if it is unanticipated.

Correct Answer
verified

Exam 12: Money Growth and Inflation

When the price level rises, the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

An increase in money demand would create a surplus of money at the original value of money.

Correct AnswerverifiedShow Answer

When inflation rises, the nominal interest rate

Correct AnswerverifiedShow Answer

The price level is a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

During the recent financial crisis velocity decreased. This means that the rate at which money changed hands

Correct AnswerverifiedShow Answer

The costs of changing price tags and price listings are known as

Correct AnswerverifiedShow Answer

If the CPI rises, the number of dollars needed to buy a representative basket of goods

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

The value of money falls as the price level

Correct AnswerverifiedShow Answer

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

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Correct AnswerverifiedShow Answer

If M = 4,000, P = 1.5, and Y= 6,000, what is velocity?

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Correct AnswerverifiedShow Answer

Velocity is computed as

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

An excess supply of money is eliminated by a falling price level

Correct AnswerverifiedShow Answer

Inflation is costly only if it is unanticipated.

Correct AnswerverifiedShow Answer

Correct Answer
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