Question 1

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 2

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?

Accepted Answer

A)   the velocity concept
B)   the Keynesian principle
C)   the classical dichotomy
D)   the classical theory of moneyE) A) and B)
F) None of the above

Question 3

When deciding how much to save,what interest rates do people usually care most about?

Accepted Answer

A)   after-tax nominal interest rates
B)   after-tax real interest rates
C)   before-tax real interest rates
D)   before-tax nominal interest ratesE) A) and B)
F) B) and D)

Question 4

Why is the money supply curve vertical?

Accepted Answer

A)   The quantity of money supplied increases when the value of money increases.
B)   The quantity of money supplied increases when the price level decreases.
C)   The quantity of money supplied increases only if people desire to hold more money.
D)   The quantity of money supplied increases only if the central bank increases the money supply.E) C) and D)
F) A) and C)

Question 5

If the money supply growth rate permanently increased from 5 percent to 30 percent,what would we expect to happen to inflation?

Accepted Answer

A)   It would increase by more than 25 percentage points.
B)   It would increase by 25 percentage points.
C)   It would increase by less than 25 percentage points.
D)   It would decrease by more than 25 percentage points.E) B) and C)
F) A) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

According to the principle of monetary neutrality,what will a decrease in the money supply NOT change?

Accepted Answer

A)   nominal GDP
B)   the price level
C)   labour productivity
D)   the nominal wage rateE) B) and C)
F) A) and D)

Question 8

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

Accepted Answer

A)   The equilibrium value and equilibrium quantity of money both increase.
B)   The equilibrium value and equilibrium quantity of money both decrease.
C)   The equilibrium value increases,while the equilibrium quantity of money decreases.
D)   The equilibrium value decreases,while the equilibrium quantity of money increases.E) B) and C)
F) B) and D)

Question 9

Last year,Tealandia produced 60,000 bags of green tea,which sold at 10 units each of Tealandia's currency-the leaf.Tealandia's money supply was 15,000.What was the velocity of money in Tealandia?

Accepted Answer

A)   1 / 30
B)   5 / 6
C)   30
D)   40E) A) and B)
F) A) and D)

Question 10

When the price level falls,what happens to the number of dollars needed to buy a representative basket of goods?

Accepted Answer

A)   It increases,so the value of money rises.
B)   It increases,so the value of money falls.
C)   It decreases,so the value of money rises.
D)   It decreases,so the value of money falls.E) None of the above
F) B) and D)

Question 11

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

Accepted Answer

A)   It shifts to the right,lowering the price level.
B)   It shifts to the right,raising the price level.
C)   It shifts to the left,raising the price level.
D)   It shifts to the left,lowering the price level.E) None of the above
F) B) and C)

Question 12

The velocity of money in the small Republic of Sloagia is always the same.Last year,the money supply was $2 billion and real GDP was $5 billion.This year,the money supply increased by 6 percent,real GDP by 4 percent,and nominal GDP is $6.5 billion.
a)Calculate the velocity of money and the price levels in the two years,and then calculate the inflation rate.
b)Calculate the inflation rate using the formula ÄM / M + ÄV / V = ÄP / P + ÄY / Y,where the Greek letter Ä represents a change and the ratio ÄM / M × 100 is the percentage change (or the rate of change)in M.Compare this result with the result you obtained in part a.Why could there be some difference?

Accepted Answer

a)Real GDP this year is Y = 5 × 1.04 = 5...

Question 13

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 14

The money supply in Freedonia is $200 billion.Nominal GDP is $800 billion,and real GDP is $400 billion.What is the price level in Freedonia?

Accepted Answer

A)   1
B)   2
C)   4
D)   8E) None of the above
F) B) and C)

Question 15

What idea does the classical dichotomy refer to?

Accepted Answer

A)   The supply of money is irrelevant for understanding the determinants of nominal and real variables.
B)   The supply of money determines nominal variables,but not real variables.
C)   The supply of money determines real variables,but not nominal variables.
D)   The supply of money is a determinant of both real and nominal variables.E) B) and D)
F) None of the above

Question 16

Your boss gives you an increase in the number of dollars you earn per hour,from $11 to $12.How does this change your nominal and real wages?

Accepted Answer

A)   This increase in pay makes your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage also increased.
B)   This increase in pay makes your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage decreased.
C)   This increase in pay makes your real wage increase.If your real wage rose by a greater percentage than the price level,then your nominal wage also increased.
D)   This increase in pay makes your real wage decrease.If your real wage rose by a greater percentage than the price level,then your nominal wage decreased.E) A) and C)
F) None of the above

Question 17

What terms refers to the cost of changing price tags and price listings?

Accepted Answer

A)   inflation-induced tax distortions
B)   resource misallocation costs
C)   shoe leather costs
D)   menu costsE) A) and D)
F) None of the above

Question 18

Figure 11-1 
-Refer to the Figure 11-1.What happens when the money supply curve shifts from MS1 to MS2?

Accepted Answer

A)   The equilibrium value of money decreases.
B)   The equilibrium price level decreases.
C)   The supply of money decreases.
D)   The demand for goods and services decreases.E) A) and B)
F) A) and C)

Question 19

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 20

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

Exam 11: Money Growth and Inflation

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

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

Correct Answer
verified

What idea does the classical dichotomy refer to?

Correct Answer
verified

If the money supply growth rate permanently increased from 5 percent to 30 percent,what would we expect to happen to inflation?

Correct Answer
verified

When the price level falls,what happens to the number of dollars needed to buy a representative basket of goods?

Correct Answer
verified

According to the principle of monetary neutrality,what will a decrease in the money supply NOT change?

Correct Answer
verified

Your boss gives you an increase in the number of dollars you earn per hour,from $11 to $12.How does this change your nominal and real wages?

Correct Answer
verified

Why is the money supply curve vertical?

Correct Answer
verified

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Correct Answer
verified

What terms refers to the cost of changing price tags and price listings?

Correct Answer
verified

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?

Correct Answer
verified

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

Correct Answer
verified

When deciding how much to save,what interest rates do people usually care most about?

Correct Answer
verified

Last year,Tealandia produced 60,000 bags of green tea,which sold at 10 units each of Tealandia's currency-the leaf.Tealandia's money supply was 15,000.What was the velocity of money in Tealandia?

Correct Answer
verified

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

Correct Answer
verified

The source of all four classic hyperinflations was high rates of money growth.

Correct Answer
verified

Figure 11-1 -Refer to the Figure 11-1.What happens when the money supply curve shifts from MS1 to MS2?

Correct Answer
verified

The money supply in Freedonia is $200 billion.Nominal GDP is $800 billion,and real GDP is $400 billion.What is the price level in Freedonia?

Correct Answer
verified

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

Correct Answer
verified
a)Real GDP this year is Y = 5 × 1.04 = 5...
View Answer

Exam 11: Money Growth and Inflation

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

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

Correct AnswerverifiedShow Answer

What idea does the classical dichotomy refer to?

Correct AnswerverifiedShow Answer

If the money supply growth rate permanently increased from 5 percent to 30 percent,what would we expect to happen to inflation?

Correct AnswerverifiedShow Answer

When the price level falls,what happens to the number of dollars needed to buy a representative basket of goods?

Correct AnswerverifiedShow Answer

According to the principle of monetary neutrality,what will a decrease in the money supply NOT change?

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour,from $11 to $12.How does this change your nominal and real wages?

Correct AnswerverifiedShow Answer

Why is the money supply curve vertical?

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Correct AnswerverifiedShow Answer

What terms refers to the cost of changing price tags and price listings?

Correct AnswerverifiedShow Answer

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?

Correct AnswerverifiedShow Answer

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

Correct AnswerverifiedShow Answer

When deciding how much to save,what interest rates do people usually care most about?

Correct AnswerverifiedShow Answer

Last year,Tealandia produced 60,000 bags of green tea,which sold at 10 units each of Tealandia's currency-the leaf.Tealandia's money supply was 15,000.What was the velocity of money in Tealandia?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The source of all four classic hyperinflations was high rates of money growth.

Correct AnswerverifiedShow Answer

Figure 11-1 -Refer to the Figure 11-1.What happens when the money supply curve shifts from MS1 to MS2?

Correct AnswerverifiedShow Answer

The money supply in Freedonia is $200 billion.Nominal GDP is $800 billion,and real GDP is $400 billion.What is the price level in Freedonia?

Correct AnswerverifiedShow Answer

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

Correct Answerverifieda)Real GDP this year is Y = 5 × 1.04 = 5...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

Correct Answer
verified
a)Real GDP this year is Y = 5 × 1.04 = 5...
View Answer