Question 1

The supply of money increases when

Accepted Answer

A)   the value of money increases.
B)   the interest rate increases.
C)   the Federal Reserve purchases bonds.
D)   velocity increases.E) A) and B)
F) A) and C)

Question 2

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)   either a rise in output or a rise in the rate at which money changes hands.
B)   either a rise in output or a fall in the rate at which money changes hands.
C)   either a fall in output or a rise in the rate at which money changes hands.
D)   either a fall in output or a fall in the rate at which money changes hands.E) A) and D)
F) A) and C)

Question 3

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)   7 percent
B)   2.5 percent
C)   10 percent
D)   3 percentE) A) and B)
F) A) and C)

Question 4

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) All of the above
F) A) and B)

Question 5

The nominal interest rate is 3.5 percent and the inflation rate is 1.5 percent. What is the real interest rate?

Accepted Answer

A)   5.25 percent
B)   5 percent
C)   2.3 percent
D)   2 percentE) B) and D)
F) A) and D)

Question 6

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)   excess demand for money that will result in an increase in spending.
B)   excess demand for money that will result in a decrease in spending.
C)   excess supply of money that will result in an increase in spending.
D)   excess supply of money that will result in a decrease in spending.E) B) and C)
F) All of the above

Question 7

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) None of the above
F) A) and B)

Question 8

Other things the same, a decrease in velocity means that

Accepted Answer

A)   the rate at which money changes hands falls, so the price level rises.
B)   the rate at which money changes hands falls, so the price level falls.
C)   the rate at which money changes hands rises, so the price level rises.
D)   the rate at which money changes hands rises, so the price level falls.E) A) and B)
F) A) and C)

Question 9

The source of hyperinflations is primarily

Accepted Answer

A)   lower output growth.
B)   continuing declines in velocity.
C)   increases in money-supply growth.
D)   continuing increases in money demand.E) A) and B)
F) None of the above

Question 10

Figure 30-1 
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A)   the quantity of money demanded is greater than the quantity supplied; the price level will rise.
B)   the quantity of money demanded is greater than the quantity supplied; the price level will fall.
C)   the quantity of money supplied is greater than the quantity demanded; the price level will rise.
D)   the quantity of money supplied is greater than the quantity demanded; the price level will fall.E) B) and C)
F) A) and D)

Question 11

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

Question 12

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run.
B)   does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.
C)   does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run.
D)   does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.E) B) and D)
F) All of the above

Question 13

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)   dichotomous variables.
B)   nominal variables.
C)   classical variables.
D)   real variables.E) A) and B)
F) C) and D)

Question 14

The costs a business incurs to change its prices are called .

Accepted Answer

The answer of The costs a business incurs to change...

Question 15

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Accepted Answer

A)   movement to the right along the money demand curve.
B)   movement to the left along the money demand curve.
C)   shift to the right of the money supply curve.
D)   shift to the left of the money supply curve.E) C) and D)
F) A) and B)

Question 16

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Accepted Answer

A)   Y rose, V rose
B)   Y fell, V fell
C)   Y rose, V fell
D)   Y fell, V roseE) A) and C)
F) A) and D)

Question 17

Figure 30-1 
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess

Accepted Answer

A)   demand for money that is represented by the distance between points A and C.
B)   demand for money that is represented by the distance between points A and B.
C)   supply of money that is represented by the distance between points A and C.
D)   supply of money that is represented by the distance between points A and B.E) A) and C)
F) B) and C)

Question 18

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

Accepted Answer

A)   the real interest rate
B)   real GDP
C)   the real wage
D)   the nominal wage.E) A) and B)
F) All of the above

Question 19

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-3. What quantity is measured along the vertical axis?

Accepted Answer

A)   the price level
B)   the velocity of money
C)   the value of money
D)   the quantity of moneyE) None of the above
F) C) and D)

Question 20

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 i...

Exam 12: Money Growth and Inflation

Money demand refers to

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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 i...View AnswerShow Answer

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. What quantity is measured along the vertical axis?

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Deflation

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

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The costs a business incurs to change its prices are called .

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Economic variables whose values are measured in monetary units are called

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Other things the same, a decrease in velocity means that

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Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

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The source of hyperinflations is primarily

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According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

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Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

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When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

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Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess

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Monetary neutrality means that a change in the money supply

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The nominal interest rate is 3.5 percent and the inflation rate is 1.5 percent. What is the real interest rate?

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The supply of money increases when

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The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

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

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Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

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