Question 1

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

Accepted Answer

A)  demanded increases.
B)  demanded decreases.
C)  supplied increases.
D)  supplied decreases.E) None of the above
F) C) and D)

Question 2

Over time both real GDP and the price level have trended upward.Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Accepted Answer

A)  both the upward trend in real GDP and the upward trend in the price level
B)  the upward trend in real GDP but not the upward trend in the price level
C)  the upward trend in the price level but not the upward trend in real GDP
D)  neither the upward trend in the price level nor the upward trend in real GDPE) A) and B)
F) None of the above

Question 3

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10.You compute the price of jeans relative to tee-shirts.

Accepted Answer

A)  The dollar price of jeans and the relative price of jeans are both nominal variables.
B)  The dollar price of jeans and the relative price of jeans are both real variables.
C)  The dollar price of jeans is a nominal variable;the relative price of jeans is a real variable.
D)  The dollar price of jeans is a real variable;the relative price of jeans is a nominal variable.E) A) and D)
F) B) and C)

Question 4

Velocity is

Accepted Answer

A)  Y/(M x P) and increases if dollars are exchanged less frequently.
B)  Y/(M x P) and increases if dollars are exchanged more frequently.
C)  (P x Y) /M and increases if dollars are exchanged less frequently.
D)  (P x Y) /M and increases if dollars are exchanged more frequently.E) None of the above
F) C) and D)

Question 5

Banks advertise

Accepted Answer

A)  the real interest rate,which is how fast the dollar value of savings grows.
B)  the real interest rate,which is how fast the purchasing power of savings grows.
C)  the nominal interest rate,which is how fast the dollar value of savings grows.
D)  the nominal interest rate,which is how fast the purchasing power of savings grows.E) A) and D)
F) B) and D)

Question 6

Monetary neutrality means that a change in the money supply

Accepted Answer

A)  does not change real GDP.Most economists think this is a good description of the economy in the short run and in the long run.
B)  does not change real GDP.Most economists think this is a good description of the economy in the long run but not the short run.
C)  does change real GDP.Most economists think this is a good description of the economy in the short-run and the long run.
D)  does change real GDP.Most economists think this is a good description of the economy in the long run but not the short run.E) B) and C)
F) A) and C)

Question 7

Based on the quantity equation,if M = 100,V = 3,and Y = 150,then P =

Accepted Answer

A)  1.
B)  1.5.
C)  2.
D)  4.5.E) A) and B)
F) A) and D)

Question 8

Which of the following is not implied by the quantity equation?

Accepted Answer

A)  If velocity is stable and money is neutral,an increase in the money supply creates a proportional increase in nominal output.
B)  If velocity is stable and money is neutral,an increase in the money supply creates a proportional increase in the price level.
C)  With constant money supply and output,an increase in velocity creates an increase in the price level.
D)  With constant money supply and velocity,an increase in output creates a proportional increase in the price level.E) A) and D)
F) C) and D)

Question 9

To explain the long-run determinants of the price level and the inflation rate,most economists today rely on the

Accepted Answer

A)  quantity theory of money.
B)  price-index theory of money.
C)  theory of hyperinflation.
D)  disequilibrium theory of money and inflation.E) A) and B)
F) None of the above

Question 10

If velocity = 4,the quantity of money = 20,000,and the price level = 2.5,then the real value of output is

Accepted Answer

A)  2,000.
B)  200,000.
C)  12,500.
D)  32,000.E) All of the above
F) B) and C)

Question 11

Interest rates adjusted for the effects of inflation

Accepted Answer

A)  and inflation are nominal variables.
B)  and inflation are real variables.
C)  are real variables;inflation is a nominal variable.
D)  are nominal variables;inflation is a real variable.E) None of the above
F) All of the above

Question 12

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage.
B)  real output.
C)  real interest rates.
D)  the real wage.E) B) and C)
F) All of the above

Question 13

As the price level decreases,the value of money

Accepted Answer

A)  increases,so people must hold less money to purchase goods and services.
B)  increases,so people must hold more money to purchase goods and services.
C)  decreases,so people must hold more money to purchase goods and services.
D)  decreases,so people must hold less money to purchase goods and services.E) B) and D)
F) A) and B)

Question 14

When the money market is drawn with the value of money on the vertical axis,if money demand shifts leftward,then initially there is an

Accepted Answer

A)  excess demand for money which causes the price level to rise.
B)  excess demand for money which causes the price level to fall.
C)  excess supply of money which causes the price level to rise.
D)  excess supply of money which causes the price level to fall.E) None of the above
F) All of the above

Question 15

Other things the same,an increase 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) All of the above
F) C) and D)

Question 16

The money supply is 4,000,nominal GDP is 8,000,and real GDP is 2,000.Which of the following is 2?

Accepted Answer

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

Question 17

If P = 4 and Y = 200,then which of the following pairs of values are possible?

Accepted Answer

A)  M = 800,V = 16
B)  M = 150,V = 3
C)  M = 400,V = 2
D)  M = 200,V = 2E) A) and B)
F) A) and C)

Question 18

The Fisher effect says that

Accepted Answer

A)  the nominal interest rate adjusts one for one with the inflation rate.
B)  the growth rate of the money supply is negatively related to the velocity of money.
C)  real variables are heavily influenced by the monetary system.
D)  All of the above are correct.E) C) and D)
F) All of the above

Question 19

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

Accepted Answer

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

Question 20

Money demand refers to

Accepted Answer

A)  the total quantity of financial assets that people want to hold.
B)  how much income people want to earn per year.
C)  how much wealth people want to hold in liquid form.
D)  how much currency the Federal Reserve decides to print.E) B) and C)
F) C) and D)

Exam 17: Money Growth and Inflation: The Classical Theory of Inflation

Which of the following is not implied by the quantity equation?

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Banks advertise

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The money supply is 4,000,nominal GDP is 8,000,and real GDP is 2,000.Which of the following is 2?

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When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10.You compute the price of jeans relative to tee-shirts.

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Money demand refers to

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If P = 4 and Y = 200,then which of the following pairs of values are possible?

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When the money market is drawn with the value of money on the vertical axis,if money demand shifts leftward,then initially there is an

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

Based on the quantity equation,if M = 100,V = 3,and Y = 150,then P =

Correct AnswerverifiedShow Answer

Which of the following can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

Velocity is

Correct AnswerverifiedShow Answer

To explain the long-run determinants of the price level and the inflation rate,most economists today rely on the

Correct AnswerverifiedShow Answer

Other things the same,an increase in velocity means that

Correct AnswerverifiedShow Answer

If velocity = 4,the quantity of money = 20,000,and the price level = 2.5,then the real value of output is

Correct AnswerverifiedShow Answer

As the price level decreases,the value of money

Correct AnswerverifiedShow Answer

The Fisher effect says that

Correct AnswerverifiedShow Answer

Over time both real GDP and the price level have trended upward.Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Correct AnswerverifiedShow Answer

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