Question 1

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Question 2

An excess supply of money is eliminated by a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Question 3

When inflation rises, people will desire to hold

Accepted Answer

A)   less money and will go to the bank less frequently.
B)   less money and will go to the bank more frequently.
C)   more money and will go to the bank less frequently.
D)   more money and will go to the bank more frequently.

Question 4

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

A)   unemployment
B)   the price level
C)   nominal interest rates
D)   All of the above are correct.

Question 5

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 6

If monetary neutrality holds, then an increase in the money supply

Accepted Answer

A)   increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run.
B)   increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run.
C)   increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run.
D)   increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

Question 7

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

Accepted Answer

The answer of An increase in the price level causes...

Question 8

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)   The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
B)   The dollar amount you pay is a real value. The number of goods you give up is a nominal value.
C)   Both the dollar amount you pay and the goods you give up are nominal values.
D)   Both the dollar amount you pay and the goods you give up are real values.

Question 9

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.

Question 10

The Fisher effect is crucial for understanding changes over time in

Accepted Answer

A)   the nominal interest rate.
B)   the real interest rate.
C)   the inflation rate.
D)   the unemployment rate.

Question 11

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Accepted Answer

A)   shifts right, causing the price level to rise.
B)   shifts right, causing the price level to fall.
C)   shifts left, causing the price level to rise.
D)   shifts left, causing the price level to fall.

Question 12

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A)   the inflation tax.
B)   menu costs.
C)   the inflation fallacy.
D)   shoeleather costs.

Question 13

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A)   People who held money would feel poorer.
B)   Prices would rise.
C)   People who had lent money at a fixed interest rate would feel poorer.
D)   All of the above are correct.

Question 14

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 15

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after­tax real rate of interest

Accepted Answer

A)   will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
B)   will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
C)   will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
D)   will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.

Question 16

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   None of the above is correct.

Question 17

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)   -43 percent
B)   -57 percent
C)   57 percent
D)   75 percent

Question 18

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

Accepted Answer

A)   either money demand or money supply shifts right.
B)   either money demand or money supply shifts left.
C)   money demand shifts right or money supply shifts left.
D)   money demand shifts left or money supply shifts right.

Question 19

Which of the following statements concerning the history of U.S. inflation is not correct?

Accepted Answer

A)   Prices rose at an average annual rate of about 3.6 percent over the last 80 years.
B)   There was about a 17-fold increase in the price level over the last 80 years.
C)   Inflation in the 1970s was below the average over the last 80 years.
D)   The United States has experienced periods of deflation.

Question 20

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Accepted Answer

A) True 
 B)False

Exam 12: Money Growth and Inflation

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

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Correct Answer
verified

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct Answer
verified

If monetary neutrality holds, then an increase in the money supply

Correct Answer
verified

The idea that inflation by itself reduces people's purchasing power is called

Correct Answer
verified

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's aftertax real rate of interest

Correct Answer
verified

The Fisher effect is crucial for understanding changes over time in

Correct Answer
verified

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
verified

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Correct Answer
verified

An excess supply of money is eliminated by a decrease in the value of money.

Correct Answer
verified

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct Answer
verified

An increase in the price level causes the value of money to _. Therefore, people will want to hold money, because the cost of their purchases has increased.

Correct Answer
verified

Which of the following statements concerning the history of U.S. inflation is not correct?

Correct Answer
verified

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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

When inflation rises, people will desire to hold

Correct Answer
verified

Nominal GDP measures output of final goods and services in physical terms.

Correct Answer
verified

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Correct Answer
verified

Correct Answer
verified

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Correct Answer
verified

Exam 12: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

If monetary neutrality holds, then an increase in the money supply

Correct AnswerverifiedShow Answer

The idea that inflation by itself reduces people's purchasing power is called

Correct AnswerverifiedShow Answer

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after­tax real rate of interest

Correct AnswerverifiedShow Answer

The Fisher effect is crucial for understanding changes over time in

Correct AnswerverifiedShow Answer

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Correct AnswerverifiedShow Answer

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Correct AnswerverifiedShow Answer

An excess supply of money is eliminated by a decrease in the value of money.

Correct AnswerverifiedShow Answer

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct AnswerverifiedShow Answer

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

Correct AnswerverifiedShow Answer

Which of the following statements concerning the history of U.S. inflation is not correct?

Correct AnswerverifiedShow Answer

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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

When inflation rises, people will desire to hold

Correct AnswerverifiedShow Answer

Nominal GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Correct AnswerverifiedShow Answer

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Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's aftertax real rate of interest

Correct Answer
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Correct Answer
verified

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
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Correct Answer
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An increase in the price level causes the value of money to _. Therefore, people will want to hold money, because the cost of their purchases has increased.

Correct Answer
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