Question 1

When prices are falling, economists say that there is

Accepted Answer

A)   Disinflation.
B)   Deflation.
C)   A contraction.
D)   An inverted inflation.E) B) and D)
F) None of the above

Question 2

If real GDP falls and the nominal interest rate rises, then the equilibrium price level

Accepted Answer

A)   Must fall.
B)   Must rise.
C)   Will fall if the effect of the decline in real GDP dominates.
D)   Will fall if the effect of the increase in the nominal interest rate dominates.E) A) and B)
F) A) and D)

Question 3

The quantity equation states that

Accepted Answer

A)   Money × real output = velocity × price level.
B)   Money × velocity = price level × real output.
C)   None of these answers.
D)   Money × price level = velocity × real output.E) A) and D)
F) A) and B)

Question 4

The nominal demand for money

Accepted Answer

A)   Does not depend on interest rates.
B)   Does not depend on the price level.
C)   Is positively related to the price level.
D)   Is positively related to the nominal interest rate.E) A) and B)
F) B) and C)

Question 5

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A)   Upward sloping because people supply a larger quantity of money when the value of money increases.
B)   Downward sloping because people supply a larger quantity of money when the value of money decreases.
C)   horizontal because we assume the central bank controls the money supply
D)   Vertical because we assume the central bank controls the money supply.E) A) and D)
F) A) and B)

Question 6

The quantity theory of money concludes that an increase in the money supply causes a proportional

Accepted Answer

A)   Increase in prices.
B)   Increase in real output.
C)   Decrease in velocity.
D)   Increase in velocity.
E)   Decrease in prices.F) C) and D)
G) A) and B)

Question 7

Which of the following statements is NOT true?

Accepted Answer

A)   Inflation is an economy-wide phenomenon that concerns, first and foremost, the value of the economy's medium of exchange.
B)   The quantity theory states that the primary cause of inflation is growth in the supply of money.
C)   The so-called inflation tax does not affect those people whose incomes do not rise with inflation.
D)   Some inflation in any economy is desirable because it is a sign that demand is present, that there is a reason to produce and invest, and that there is reward to be gained from enterprise.E) A) and B)
F) A) and C)

Question 8

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Accepted Answer

A)   Costs due to inflation induced tax distortions.
B)   Arbitrary redistributions of wealth.
C)   Shoeleather costs.
D)   Menu costs.
E)   Costs due to confusion and inconvenience.F) A) and C)
G) B) and D)

Question 9

If the money supply is €500, real output is 2,500 units, and the average price of a unit of real output is €2, the velocity of money is 10.

Accepted Answer

A) True 
 B)False

Question 10

In the long run, inflation is caused by

Accepted Answer

A)   Governments that raise taxes so high that it increases the cost of doing business and, hence, raise prices.
B)   Banks that have market power and refuse to lend money.
C)   None of these answers.
D)   Governments that print too much money.
E)   Increases in the price of inputs, such as labour and oil.F) A) and D)
G) B) and E) D

Question 11

If the price level doubles,

Accepted Answer

A)   The quantity demanded of money falls by half.
B)   The value of money is cut by half.
C)   Nominal income is unaffected.
D)   None of these answers.
E)   The money supply has halved.F) B) and D)
G) B) and C)

Question 12

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

Accepted Answer

When a central bank sells governmen...

Question 13

The Fisher effect suggests that, in the long run, if the rate of inflation rises from 3 per cent to 7 per cent, the nominal interest rate should increase by 4 percentage points and the real interest rate should remain unchanged.

Accepted Answer

A) True 
 B)False

Question 14

The velocity of money is

Accepted Answer

A)   Highly unstable.
B)   Impossible to measure.
C)   The rate at which money loses its value.
D)   The rate at which inflation rises.
E)   The rate at which money changes hands.F) A) and D)
G) A) and C)

Question 15

In the quantity theory of money

Accepted Answer

A)   Prices are rigid.
B)   Both velocity of money and real output are variable.
C)   Changes in the money supply cause changes in velocity of money.
D)   The velocity of money is assumed to be stable.E) B) and D)
F) A) and C)

Question 16

If the money supply grows 5 per cent, and real output grows 2 per cent, prices should rise by

Accepted Answer

A)   5 per cent.
B)   More than 5 per cent.
C)   Less than 5 per cent.
D)   None of these answers.E) A) and B)
F) C) and D)

Question 17

If a government supplies more money than the quantity people want to hold

Accepted Answer

A)   Spending will decrease and the price level will fall.
B)   Spending will increase and the price level will rise.
C)   Spending will remain constant but the price level will rise.
D)   There will be no change in the level of economic activity or prices; money is neutral.E) All of the above
F) None of the above B

Question 18

Real economic variables measure

Accepted Answer

A)   Value in the prices of some certain base year.
B)   Value in the prices of the current year.
C)   Nominal values adjusted for the current interest rate.
D)   Nominal values adjusted for the current money supply.E) A) and B)
F) None of the above

Question 19

Deflation

Accepted Answer

A)   Increases incomes and enhances the ability of debtors to pay off their debts.
B)   Increases incomes and reduces the ability of debtors to pay off their debts.
C)   Decreases incomes and enhances the ability of debtors to pay off their debts.
D)   Decreases incomes and reduces the ability of debtors to pay off their debts.E) B) and D)
F) None of the above D

Question 20

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs. This is an example of

Accepted Answer

A)   Costs due to inflation induced relative price variability which misallocates resources.
B)   Menu costs.
C)   Shoeleather costs.
D)   Costs due to inflation induced tax distortions.
E)   Costs due to confusion and inconvenience.F) A) and E)
G) A) and B)

Exam 28: Money Growth and Inflation

When prices are falling, economists say that there is

Correct AnswerverifiedShow Answer

If real GDP falls and the nominal interest rate rises, then the equilibrium price level

Correct AnswerverifiedShow Answer

The quantity equation states that

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The nominal demand for money

Correct AnswerverifiedShow Answer

With the value of money on the vertical axis, the money supply curve is

Correct AnswerverifiedShow Answer

The quantity theory of money concludes that an increase in the money supply causes a proportional

Correct AnswerverifiedShow Answer

Which of the following statements is NOT true?

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Which of the following costs of inflation does not occur when inflation is constant and predictable?

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If the money supply is €500, real output is 2,500 units, and the average price of a unit of real output is €2, the velocity of money is 10.

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In the long run, inflation is caused by

Correct AnswerverifiedD

If the price level doubles,

Correct AnswerverifiedShow Answer

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

Correct Answerverified​​ When a central bank sells governmen...View AnswerShow Answer

The Fisher effect suggests that, in the long run, if the rate of inflation rises from 3 per cent to 7 per cent, the nominal interest rate should increase by 4 percentage points and the real interest rate should remain unchanged.

Correct AnswerverifiedShow Answer

The velocity of money is

Correct AnswerverifiedShow Answer

In the quantity theory of money

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If the money supply grows 5 per cent, and real output grows 2 per cent, prices should rise by

Correct AnswerverifiedShow Answer

If a government supplies more money than the quantity people want to hold

Correct AnswerverifiedB

Real economic variables measure

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Deflation

Correct AnswerverifiedD

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs. This is an example of

Correct AnswerverifiedShow Answer

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D

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When a central bank sells governmen...
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B

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D

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