Question 1

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

Question 2

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 1 to MS2? 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. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

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

Question 3

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

Accepted Answer

A)   the price level will rise.
B)   the value of money will rise.
C)   money demand will shift leftward.
D)   money demand will shift rightward.E) A) and B)
F) B) and D)

Question 4

Economists agree that

Accepted Answer

A)   neither high inflation nor moderate inflation is very costly.
B)   both high and moderate inflation are quite costly.
C)   high inflation is costly, but they disagree about the costs of moderate inflation.
D)   moderate inflation is as costly as high inflation.E) A) and B)
F) A) and C)

Question 5

Suppose there is a surplus in the money market.

Accepted Answer

A)   This could have been created by an increase in the money supply. The value of money will rise.
B)   This could have been created by an increase in the money supply. The value of money will fall.
C)   This could have been created by a decrease in the money supply. The value of money will rise.
D)   This could have been created by a decrease in the money supply. The value of money will fall.E) A) and C)
F) B) and C)

Question 6

Money demand depends on

Accepted Answer

A)   the price level and the interest rate.
B)   the price level but not the interest rate.
C)   the interest rate but not the price level.
D)   neither the price level nor the interest rate.E) A) and C)
F) A) and B)

Question 7

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 nominal interest rates.
B)   the inflation rate, but not nominal interest rates.
C)   nominal interest rates, but not the inflation rate.
D)   neither the inflation rate nor nominal interest rates.E) C) and D)
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

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 1, then the equilibrium value of money is A)  0.5 and the equilibrium price level is 2. B)  2 and the equilibrium price level is 0.5. C)  0.5 and the equilibrium price level cannot be determined from the graph. D)  2 and the equilibrium price level cannot be determined from the graph. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A)   0.5 and the equilibrium price level is 2.
B)   2 and the equilibrium price level is 0.5.
C)   0.5 and the equilibrium price level cannot be determined from the graph.
D)   2 and the equilibrium price level cannot be determined from the graph.E) A) and B)
F) A) and C)

Question 10

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 11

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A)   falls to half it's original level.
B)   doubles.
C)   more than doubles.
D)   does not change.E) None of the above
F) A) and B)

Question 12

Which of the following is correct?

Accepted Answer

A)   Inflation impedes financial markets in their role of allocating savings to alternative investments.
B)   Inflation encourages savings through the tax treatment on capital gains.
C)   Inflation encourages larger holdings of currency by the public.
D)   Inflation reduces people's real purchasing power.E) A) and D)
F) A) and C)

Question 13

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 D)

Question 14

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 15

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A)   increases the price level and increases the value of money.
B)   increases the price level and decreases the value of money.
C)   decreases the price level and increases the value of money.
D)   decreases the price level and decreases the value of money.E) All of the above
F) A) and D)

Question 16

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

Accepted Answer

A)   increases, so the value of money rises.
B)   increases, so the value of money falls.
C)   decreases, so the value of money rises.
D)   decreases, so the value of money falls.E) B) and C)
F) C) and D)

Question 17

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 18

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A)   both a nominal gain and a real gain.
B)   a nominal gain and a real loss.
C)   a nominal loss and a real gain.
D)   both a nominal loss and a real loss.E) A) and D)
F) B) and C)

Question 19

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) A) and C)

Question 20

If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

Accepted Answer

A)   the expected real interest rate is 11 percent.
B)   the expected real interest rate is 7 percent.
C)   the expected real interest rate is 4 percent.
D)   the expected real interest rate is 15 percent.E) A) and B)
F) C) and D)

Exam 12: Money Growth and Inflation

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

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Other things the same, a decrease in velocity means that

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When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

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

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Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

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The source of hyperinflations is primarily

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You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

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If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

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Economists agree that

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Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

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Money demand depends on

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Which of the following is correct?

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Suppose there is a surplus in the money market.

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Deflation

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Economic variables whose values are measured in monetary units are called

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The quantity equation is M x V = P x Y.

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

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If Y and M are constant and V doubles, the quantity equation implies that the price level

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

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Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

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Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-3. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

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Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD₁, then the equilibrium value of money is

Correct Answer
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