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Terms in this set (36)
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
a. nominal GDP would be unchanged; real GDP would rise by 5 percent.
b. nominal GDP would rise by 5 percent; real GDP would be unchanged.
c. neither nominal GDP nor real GDP would change.
d. nominal and real GDP
would rise by 5 percent.
b. nominal GDP would rise by 5 percent; real GDP would be unchanged.
According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases
a. inflation and nominal interest rates, but does not change real interest rates.
b. inflation and real interest rates, but does not change nominal interest rates.
c. neither inflation,
nominal interest rates, or real interest rates.
d. inflation, nominal interest rates, and real interest rates.
a. inflation and nominal interest rates, but does not change real interest rates.
Suppose that velocity rises while the money supply stays the same. It follows that
a. the effects on P x Y are uncertain.
b. P x Y must rise.
c. P x Y must be unchanged.
d. P x Y must fall.
b. P x Y must rise.
The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.
a. The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
b. Both the dollar amount you pay and the goods you give up are real values.
c. Both the dollar amount you pay and the goods you give up are nominal
values.
d. The dollar amount you pay is a real value. The number of goods you give up is a nominal value.
a. The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
Money demand depends on
a. the price level but not the interest rate.
b. the interest rate but not the price level.
c. the price level and the interest rate.
d. neither the price level nor the
interest rate.
c. the price level and the interest rate.
The Fisher effect says that
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.
a. the nominal interest rate adjusts one for one with the inflation rate.
The Fisher effect is crucial for understanding changes over time in
a. the unemployment rate.
b. the nominal interest rate.
c. the inflation rate.
d. the real interest rate.
b. the nominal interest rate.
When inflation rises, firms make
a. less frequent price changes. This reduces their
menu costs.
b. less frequent price changes. This raises their menu costs.
c. more frequent price changes. This reduces their menu costs.
d. more frequent price changes. This raises their menu costs.
d. more frequent price changes. This raises their menu costs.
Higher inflation
a. causes firms to change prices more frequently and makes relative prices less variable.
b. causes firms to change
prices more frequently and makes relative prices more variable.
c. causes firms to change prices less frequently and makes relative prices less variable.
d. causes firms to change prices less frequently and makes relative prices more variable.
b. causes firms to change prices more frequently and makes relative prices more variable.
According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases
a. inflation and real interest rates, but does not change nominal interest rates.
b. inflation, nominal interest rates, and real interest rates.
c. inflation and nominal interest rates, but does not change real interest rates.
d. neither inflation, nominal interest rates, or real interest rates.
c. inflation and nominal interest rates, but does not change real interest rates.
According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then
a. both the price level and real GDP would be unchanged.
b. the price level would be unchanged and real GDP would rise by 5 percent.
c. the price level would rise by 5 percent and real GDP would be unchanged.
d. both the price level and real GDP would rise by 5 percent.
c. the price level would rise by 5 percent and real GDP would be unchanged.
Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
a. the classical dichotomy, but not the quantity theory of money.
b. the quantity theory of money, but not the classical dichotomy.
c. neither the classical dichotomy nor the quantity theory of money.
d. both the classical dichotomy and the quantity theory of money.
d. both the classical dichotomy and the quantity theory of money.
The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?
a. 4 percent.
b. 3 percent.
c. 8 percent.
d. 12 percent.
a. 4 percent.
On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
nar002-1.jpg
Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is
a. 2 and the equilibrium price level cannot be determined from the graph.
b. 2 and the equilibrium price level is 0.5.
c. 0.5 and the equilibrium price level is 2.
d. 0.5 and the equilibrium price level cannot be determined from the graph.
c. 0.5 and the equilibrium price level is 2.
On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.
a. Both the $750 and the 300 cups of coffee are real variables.
b. Both the $750 and the 300 cups of coffee are nominal variables.
c. The $750 is a real variable. The 300 cups of coffee is a nominal variable.
d. The $750 is a nominal variable. The 300 cups of coffee is a real variable.
d. The $750 is a nominal variable. The 300 cups of coffee is a real variable.
Figure 30-1
nar001-1.jpg
Refer to Figure 30-1. If the current money supply is MS1, then
a. there is no excess supply or excess demand if the value of money is 2.
b. the equilibrium is at point C.
c. there is an excess supply of money if the value of money is 1.
d. None of the above is correct.
a. there is no excess supply or excess demand if the value of money is 2.
Which of the following is correct? Inflation
a. reduces the purchasing power of the average consumer.
b. is most costly when anticipated.
c. generally increases after-tax real interest rates.
d. impedes financial markets in their role of allocating resources.
d. impedes financial markets in their role of allocating resources.
You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 40 percent. What is your after-tax real rate of interest?
a. 1 percent
b. 1.8 percent
c. 2.2 percent
d. 4.2 percent
c. 2.2 percent
According to the classical dichotomy, when the money supply doubles which of the following doubles?
a. the price
level and real GDP
b. the price level and nominal GDP
c. only the price level
d. only real GDP
b. the price level and nominal GDP
The Fisher effect is crucial for understanding changes over time in
a. the inflation rate.
b. the nominal interest rate.
c. the real interest rate.
d. the unemployment rate.
b. the nominal interest rate.
The nominal interest rate is 4.5 percent and the inflation rate is 0.9 percent. What is the real interest rate?
a. 4.1 percent
b. 5 percent
c. 3.6 percent
d. 5.4 percent
c. 3.6 percent
Most economists believe that monetary neutrality provides
a. a good description of both the long run and the short run.
b. a good description of the long run, but not the short
run.
c. a good description of the short run, but not the long run.
d. a good description of neither the long run nor the short run.
b. a good description of the long run, but not the short run.
Nominal GDP measures
a. the total quantity of final goods and services produced.
b. the dollar value of the economy's output of final goods and services.
c. the total income received from producing final
goods and services measured in constant dollars.
d. None of the above is correct.
b. the dollar value of the economy's output of final goods and services.
The price level falls if either
a. money demand or money supply shifts rightward.
b. money demand shifts leftward or money supply shifts rightward.
c. money demand or money supply shifts leftward.
d. money demand shifts rightward or money
supply shifts leftward.
d. money demand shifts rightward or money supply shifts leftward.
Based on the quantity equation, if M = 3,000, P = 2, and Y = 4,500, then V =
a. 1.33.
b. 1.5.
c. 3.
d. 6.75.
c. 3.
Shoeleather costs arise when higher inflation rates induce people to
a. hold less money.
b. spend
less time looking for bargains.
c. hold more money.
d. spend more time looking for bargains.
a. hold less money.
The inflation tax
a. transfers wealth from the government to households.
b. is the increase in real income taxes due to lack of indexation in income tax rules.
c. is a tax on everyone who holds money.
d. All of the above are correct.
c. is a tax on everyone who holds money.
According to the classical dichotomy, which of the following increases when the money supply increases?
a. the real interest rate
b. real GDP
c. the real wage
d. None of the above increases.
d. None of the above increases.
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
a. the price level
b. nominal wages
c. nominal GDP
d. All of the above are correct.
d. All of the above are correct.
Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
nar002-1.jpg
Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then
a. when the
money market is in equilibrium, one dollar purchases one-half of a basket of goods and services.
b. when the money market is in equilibrium, one unit of goods and services sells for 2 dollars.
c. there is an excess demand for money if the value of money in terms of goods and services is 0.375.
d. All of the above are correct.
d. All of the above are correct.
Figure 30-1
nar001-1.jpg
Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then
a. the quantity of money supplied is greater than the quantity demanded; the price level will fall.
b. the quantity of money demanded is greater than the quantity supplied; the price level will rise.
c. the quantity of money demanded is greater than the quantity supplied; the price level will fall.
d. the quantity of money supplied is greater than the quantity demanded; the price level will rise
d. the quantity of money supplied is greater than the quantity demanded; the price level will rise
Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?
a. People who held money would feel poorer.
b. Prices would rise.
c. People who had lent money at a fixed interest rate would feel poorer.
d. All of the above are correct.
d. All of the above are correct.
Money demand refers to
a. how much currency the Federal Reserve decides to print.
b. how much income people want to earn per year.
c. the total quantity of financial assets that people want to hold.
d. how much wealth people want to hold in liquid form.
d. how much wealth people want to hold in liquid form.
Based on the quantity equation, if M = 150, V = 4, and Y = 200, then P =
a. 2.
b. 1/3.
c. 1/2.
d. 3.
d. 3.
Higher inflation
a. causes firms to change prices more frequently and makes relative prices more variable.
b. causes firms to change prices more frequently and makes relative prices less variable.
c. causes firms to change prices less frequently and makes
relative prices less variable.
d. causes firms to change prices less frequently and makes relative prices more variable.
a. causes firms to change prices more frequently and makes relative prices more variable.
Shoeleather cost refers to
a. the tendency to expend more effort searching for the lowest price when inflation is high.
b. the cost of more frequent price changes induced by higher
inflation.
c. the distortion in resource allocation created by distortions in relative prices due to inflation.
d. resources used to maintain lower money holdings when inflation is high.
d. resources used to maintain lower money holdings when inflation is high.
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