Question 1

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 D)
F) None of the above

Question 2

If the price level this year was 140 and was 135 last year, what was the inflation rate to the nearest decimal?

Accepted Answer

The answer of If the price level this year was...

Question 3

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Accepted Answer

A)   the money supply and the price level increase.
B)   the money supply and the price level decrease.
C)   the money supply increases and the price level decreases.
D)   the money supply increases and the price level increases.E) B) and D)
F) B) and C)

Question 4

The value of money falls. This might be because the Federal Reserve

Accepted Answer

A)   bought bonds, which increased the money supply.
B)   bought bonds, which decreased the money supply.
C)   sold bonds, which increased the money supply.
D)   sold bonds, which decreased the money supply.E) A) and C)
F) B) and C)

Question 5

When inflation rises people will

Accepted Answer

A)   demand more money so the price level rises.
B)   demand more money so the price level falls.
C)   demand less money so the price level rises.
D)   demand less money so the price level falls.E) B) and C)
F) A) and D)

Question 6

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

Question 7

In which of the following cases was the inflation rate 12 percent over the last year?

Accepted Answer

A)   One year ago the price index had a value of 110 and now it has a value of 120.
B)   One year ago the price index had a value of 120 and now it has a value of 132.
C)   One year ago the price index had a value of 134 and now it has a value of 150.
D)   One year ago the price index had a value of 145 and now it has a value of 163.E) None of the above
F) A) and B)

Question 8

Shoeleather cost refers to

Accepted Answer

A)   the cost of more frequent price changes induced by higher inflation.
B)   the distortion in resource allocation created by distortions in relative prices due to inflation.
C)   resources used to maintain lower money holdings when inflation is high.
D)   the tendency to expend more effort searching for the lowest price when inflation is high.E) A) and B)
F) A) and D)

Question 9

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Accepted Answer

A)   both interest income and capital gains.
B)   interest income but not capital gains.
C)   capital gains but not interest income.
D)   neither interest income nor capital gains.E) None of the above
F) B) and D)

Question 10

When the money market is drawn with the value of money on the vertical axis,

Accepted Answer

A)   money demand slopes upward and money supply is horizontal.
B)   money demand slopes downward and money supply is horizontal.
C)   money demand slopes upward and money supply is vertical.
D)   money demand slopes downward and money supply is vertical.E) A) and C)
F) All of the above

Question 11

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 12

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) A) and C)

Question 13

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

Accepted Answer

The answer of An increase in the price level causes...

Question 14

The price level rises if either

Accepted Answer

A)   money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a rise in the value of money.
B)   money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a fall in the value of money.
C)   money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a rise in the value of money.
D)   money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.E) A) and D)
F) None of the above

Question 15

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A)   increase real GDP and the price level.
B)   increase real GDP, but not the price level.
C)   increase the price level, but not real GDP.
D)   increase neither the price level nor real GDP.E) C) and D)
F) B) and D)

Question 16

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

Question 17

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 18

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 19

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A)   upward-sloping.
B)   downward-sloping.
C)   horizontal.
D)   vertical.E) A) and B)
F) A) and C)

Question 20

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Accepted Answer

A)   higher than she had expected, and the real value of the loan is higher than she had expected.
B)   higher than she had expected, and the real value of the loan is lower than she had expected.
C)   lower than she had expected, and the real value of the loan is higher than she had expected.
D)   lower then she had expected, and the real value of the loan is lower than she had expected.E) B) and C)
F) A) and B)

Exam 30: Money Growth and Inflation

The principle of monetary neutrality implies that an increase in the money supply will

Correct AnswerverifiedShow Answer

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

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

In which of the following cases was the inflation rate 12 percent over the last year?

Correct AnswerverifiedShow Answer

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Correct AnswerverifiedShow Answer

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Correct AnswerverifiedShow Answer

Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,

Correct AnswerverifiedShow Answer

When inflation rises people will

Correct AnswerverifiedShow Answer

Shoeleather cost refers to

Correct AnswerverifiedShow Answer

An increase in money demand would create a surplus of money at the original value of money.

Correct AnswerverifiedShow Answer

The price level rises if either

Correct AnswerverifiedShow Answer

With the value of money on the vertical axis, the money supply curve is

Correct AnswerverifiedShow Answer

The inflation rate is measured as the percentage change in a price index.

Correct AnswerverifiedShow Answer

The value of money falls. This might be because the Federal Reserve

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Correct AnswerverifiedShow Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation 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

If the price level this year was 140 and was 135 last year, what was the inflation rate to the nearest decimal?

Correct AnswerverifiedShow Answer

Correct Answer
verified

An increase in the price level causes the value of money to _. Therefore, people will want to hold money, because the cost of their purchases has increased.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified