Question 1

If the Bank of Canada increases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

Accepted Answer

A) True 
 B)False

Question 2

Which statement best characterizes the effect of inflation?

Accepted Answer

A)   It impedes financial markets in their role of allocating resources.
B)   It reduces the purchasing power of the average consumer.
C)   Generally, it increases after-tax real interest rates.
D)   It directly lowers living standards.E) All of the above
F) B) and C)

Question 3

According to Hume, the classical dichotomy is useful for analyzing the economy because nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

What does the Fisher effect imply?

Accepted Answer

A)   The nominal interest rate adjusts one for one with the inflation rate.
B)   The growth rate of the money supply determines the inflation rate.
C)   Real variables are heavily influenced by the monetary system.
D)   The real interest rate adjusts one for one with the inflation rate.E) B) and C)
F) None of the above

Question 6

What does real GDP measure?

Accepted Answer

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 at current prices
D)   the change in prices from the base year to current yearE) None of the above
F) A) and B)

Question 7

Use a money supply and demand diagram to answer the following problem: "The introduction of automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Accepted Answer

The introduction of automated teller mac...

Question 8

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 9

How can inflation be measured?

Accepted Answer

A)   by the change in the consumer price index
B)   by the percentage change in the consumer price index
C)   by the percentage change in nominal GDP
D)   by the change in the price of a specific commodityE) C) and D)
F) None of the above

Question 10

According to the classical dichotomy, what is influenced by monetary factors?

Accepted Answer

A)   real GDP
B)   investment
C)   nominal interest rates
D)   the real wage rateE) C) and D)
F) A) and D)

Question 11

What does nominal GDP measure?

Accepted Answer

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 in constant dollars
D)   the percentage change in price levelE) All of the above
F) A) and B)

Question 12

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 13

Assuming that velocity is stable, if real GDP grows by 20 percent this year, and if the money supply does not change this year, how much does the price level change by?

Accepted Answer

A)   -20 percent
B)   -10 percent
C)   10 percent
D)   20 percentE) A) and B)
F) A) and C)

Question 14

When the money market is drawn with the value of money on the vertical axis, in which situation does the price level increase?

Accepted Answer

A)   if either money demand or money supply shifts right
B)   if either money demand or money supply shifts left
C)   if money demand shifts right or money supply shifts left
D)   if money demand shifts left or money supply shifts rightE) A) and B)
F) B) and C)

Question 15

Explain the adjustment process that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases, there i...

Question 16

According to the classical dichotomy theory, when the money supply doubles, what also doubles?

Accepted Answer

A)   the price level
B)   the real interest rate
C)   the inflation rate
D)   the real incomeE) A) and B)
F) All of the above

Question 17

In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded, draw the Md - P curve that is implied by the quantity equation. Show how the P?2-Md curve changes when Y changes.

Accepted Answer

When Y increases from Y₁ to Y₂, the slop...

Question 18

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level and nominal GDP change?

Accepted Answer

A)   The price level and nominal GDP will not change.
B)   The price level will not change but nominal GDP will grow by 10 percent.
C)   The price level will decrease by 10 percent and nominal GDP will stay the same.
D)   The price level and nominal GDP will increase by 10 percent.E) B) and D)
F) None of the above

Question 19

Define each of the symbols and explain the meaning of M × V = P × Y.

Accepted Answer

M is the quantity of money, V is the vel...

Question 20

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis, draw a money demand curve and explain its shape. Do the same for the money supply curve.

Accepted Answer

See Figure 11.1 in the textbook. The mon...

Exam 11: Money Growth and Inflation

What does real GDP measure?

Correct Answer
verified

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis, draw a money demand curve and explain its shape. Do the same for the money supply curve.

Correct Answer
verified
See Figure 11.1 in the textbook. The mon...
View Answer

Assuming that velocity is stable, if real GDP grows by 20 percent this year, and if the money supply does not change this year, how much does the price level change by?

Correct Answer
verified

What does nominal GDP measure?

Correct Answer
verified

According to Hume, the classical dichotomy is useful for analyzing the economy because nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct Answer
verified

Correct Answer
verified
When Y increases from Y₁ to Y₂, the slop...
View Answer

What does the Fisher effect imply?

Correct Answer
verified

Define each of the symbols and explain the meaning of M × V = P × Y.

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Explain the adjustment process that creates a change in the price level when the money supply increases.

Correct Answer
verified
When the money supply increases, there i...
View Answer

How can inflation be measured?

Correct Answer
verified

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level and nominal GDP change?

Correct Answer
verified

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

Correct Answer
verified

According to the classical dichotomy, what is influenced by monetary factors?

Correct Answer
verified

According to the classical dichotomy theory, when the money supply doubles, what also doubles?

Correct Answer
verified

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

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, in which situation does the price level increase?

Correct Answer
verified

If the Bank of Canada increases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

Correct Answer
verified

Use a money supply and demand diagram to answer the following problem: "The introduction of automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Correct Answer
verified
The introduction of automated teller mac...
View Answer

Which statement best characterizes the effect of inflation?

Correct Answer
verified

Exam 11: Money Growth and Inflation

What does real GDP measure?

Correct AnswerverifiedShow Answer

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis, draw a money demand curve and explain its shape. Do the same for the money supply curve.

Correct AnswerverifiedSee Figure 11.1 in the textbook. The mon...View AnswerShow Answer

Assuming that velocity is stable, if real GDP grows by 20 percent this year, and if the money supply does not change this year, how much does the price level change by?

Correct AnswerverifiedShow Answer

What does nominal GDP measure?

Correct AnswerverifiedShow Answer

According to Hume, the classical dichotomy is useful for analyzing the economy because nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWhen Y increases from Y₁ to Y₂, the slop...View AnswerShow Answer

What does the Fisher effect imply?

Correct AnswerverifiedShow Answer

Define each of the symbols and explain the meaning of M × V = P × Y.

Correct AnswerverifiedM is the quantity of money, V is the vel...View AnswerShow Answer

Explain the adjustment process that creates a change in the price level when the money supply increases.

Correct AnswerverifiedWhen the money supply increases, there i...View AnswerShow Answer

How can inflation be measured?

Correct AnswerverifiedShow Answer

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level and nominal GDP change?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what is influenced by monetary factors?

Correct AnswerverifiedShow Answer

According to the classical dichotomy theory, when the money supply doubles, what also doubles?

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

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, in which situation does the price level increase?

Correct AnswerverifiedShow Answer

If the Bank of Canada increases the money supply, the equilibrium value of money decreases and the equilibrium price level must increase.

Correct AnswerverifiedShow Answer

Use a money supply and demand diagram to answer the following problem: "The introduction of automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Correct AnswerverifiedThe introduction of automated teller mac...View AnswerShow Answer

Which statement best characterizes the effect of inflation?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
See Figure 11.1 in the textbook. The mon...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When Y increases from Y₁ to Y₂, the slop...
View Answer

Correct Answer
verified

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Correct Answer
verified
When the money supply increases, there i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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
The introduction of automated teller mac...
View Answer

Correct Answer
verified