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Exam 11: Money Growth and Inflation

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Question 51

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Which of the following best describes the effect of printing money to finance government expenditures on the economy?

A) Printing money causes the value of money to rise.
B) Printing money imposes a tax on everyone who holds money.
C) Printing money increases the real interest rate.
D) Printing money lowers the velocity of money.

E) All of the above
F) B) and D)

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Question 52

Multiple Choice

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Randy pays $120 for a bag of goods he purchases at the HyValu discount store. Which of the following accurately identifies the types of the variables involved?

A) The $120 is a real variable; the bag of groceries is a nominal variable.
B) The $120 is a nominal variable; the bag of groceries is a real variable.
C) Both the $120 and the bag of groceries are nominal variables.
D) Both the $120 and the bag of groceries are real variables.

E) B) and C)
F) A) and D)

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Question 53

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The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Freedonia has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 10 percent this year, how will the central bank of Freedonia change the money supply this year?

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

Velocity in the country of Shem is always stable. In 2009, the money supply was $200 billion and the GDP price deflator was four times as high as it was in the base year. In 2010, the money supply increased to $240 billion, the price level increased by 15 percent, and nominal GDP equalled $1200 billion. By how much did real GDP increase between 2009 and 2010?

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

If the Bank of Canada increases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

Which of the following kinds of variables are the interest rates stated in the Wall Street Journal?

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. What happens when the money supply curve shifts from MS₁ to MS₂?

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

If velocity and output were nearly constant, how would the inflation rate compare with the money supply growth rate?

According to the quantity equation, if P = 15, Y = 10, and M = 20, what is V?

Monetary neutrality implies that an increase in the quantity of money will increase which of the following?

If a country had deflation, how would the nominal interest rate compare to the real interest rate?

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in which of the following?

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

Identify each of the following as nominal or real variables. a.the physical output of goods and services b.the overall price level c.the dollar price of apples d.the price of apples relative to the price of oranges e.the unemployment rate f. the amount that shows up on your paycheque after taxes g. the amount of goods you can purchase with the wage you get each hour h. the taxes that you pay the government

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.