Question 1

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Accepted Answer

A)   both the price level and real GDP would rise by 5 percent.
B)   the price level would rise by 5 percent and real GDP would be unchanged.
C)   the price level would be unchanged and real GDP would rise by 5 percent.
D)   both the price level and real GDP would be unchanged.E) A) and B)
F) B) and C)

Question 2

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Accepted Answer

A)   raised both the price level and the value of gold in Cairo.
B)   raised the price level, but decreased the value of gold in Cairo.
C)   lowered the price level, but increased the value of gold in Cairo.
D)   lowered both the price level and the value of gold in Cairo.E) None of the above
F) A) and B)

Question 3

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

Accepted Answer

A)   Low inflation was viewed as a triumph of President Carter's economic policy.
B)   There were long periods in the nineteenth century during which prices fell.
C)   The U.S. public has viewed inflation rates of even 7 percent as a major economic problem.
D)   The U.S. inflation rate has varied over time, but international data show even more variation.E) A) and C)
F) C) and D)

Question 4

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A)   high, whether it is expected or not.
B)   low, whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.E) A) and B)
F) B) and C)

Question 5

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.E) A) and D)
F) A) and C)

Question 6

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

Question 7

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. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to

Accepted Answer

A)   2,500.
B)   7,500.
C)   10,000.
D)   40,000.E) B) and D)
F) All of the above

Question 8

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 9

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A)   decreases the price level by 2 percent.
B)   decreases the price level by less than 2 percent.
C)   increases the price level by less than 2 percent.
D)   increases the price level by 2 percent.E) A) and C)
F) B) and C)

Question 10

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Accepted Answer

A)   excess demand for money, so the price level will rise.
B)   excess demand for money, so the price level will fall.
C)   excess supply of money, so the price level will rise.
D)   excess supply of money, so the price level will fall.E) A) and C)
F) C) and D)

Question 11

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A)   28.00 percent
B)   36.25 percent
C)   43.75 percent
D)   67.50 percentE) B) and C)
F) C) and D)

Question 12

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 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

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Accepted Answer

Both the nominal and real valu...

Question 15

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

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded decreases.
D)   decreases, so the quantity of money demanded increases.E) A) and D)
F) B) and D)

Question 16

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 17

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 20

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False

Exam 22: Money Growth and Inflation

The United States has never had deflation.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Correct Answer
verified

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct Answer
verified

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

Correct Answer
verified

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Correct Answer
verified

When inflation rises, people will desire to hold

Correct Answer
verified

Wealth is redistributed from creditors to debtors when inflation is

Correct Answer
verified

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Correct Answer
verified
Both the nominal and real valu...
View Answer

In United States history there were long periods when most prices fell.

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Correct Answer
verified

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct Answer
verified

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

Correct Answer
verified

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Correct Answer
verified

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

Correct Answer
verified

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Correct Answer
verified

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 Answer
verified
We must suppose that V is rela...
View Answer

Correct Answer
verified

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Correct Answer
verified

Exam 22: Money Growth and Inflation

The United States has never had deflation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Correct AnswerverifiedShow Answer

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Correct AnswerverifiedShow Answer

When inflation rises, people will desire to hold

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation is

Correct AnswerverifiedShow Answer

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Correct AnswerverifiedBoth the nominal and real valu...View AnswerShow Answer

In United States history there were long periods when most prices fell.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Correct AnswerverifiedShow Answer

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Correct AnswerverifiedShow 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

Correct AnswerverifiedShow Answer

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Correct AnswerverifiedShow Answer

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Both the nominal and real valu...
View Answer

Correct Answer
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We must suppose that V is rela...
View Answer

Correct Answer
verified

Correct Answer
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