Question 1

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Accepted Answer

A)   1/4
B)   2
C)   4
D)   1E) A) and C)
F) C) and D)

Question 2

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 3

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Question 4

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 35 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   5.25 percent
B)   3.05 percent
C)   2.55 percent
D)   1.25 percentE) B) and C)
F) A) and D)

Question 5

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

Accepted Answer

A)   upward, because at higher prices people want to hold more money.
B)   downward, because at higher prices people want to hold more money.
C)   downward, because at higher price people want to hold less money.
D)   upward, because at higher prices people want to hold less money.E) A) and B)
F) C) and D)

Question 6

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Accepted Answer

A) True 
 B)False

Question 7

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

Accepted Answer

A)   3.33.
B)   0.83.
C)   1.20.
D)   13.33.E) A) and B)
F) A) and C)

Question 8

When the money market is drawn with the value of money on the vertical axis, the price level increases if

Accepted Answer

A)   either money demand or money supply shifts right.
B)   either money demand or money supply shifts left.
C)   money demand shifts right or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) A) and B)
F) A) and C)

Question 9

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)   -43 percent
B)   -57 percent
C)   57 percent
D)   75 percentE) All of the above
F) B) and C)

Question 10

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old value.E) A) and D)
F) A) and C)

Question 11

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real variables. 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 variables. Most economists think this is a good description of the economy in the long run but not the short run.
C)   does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run.
D)   does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.E) None of the above
F) A) and C)

Question 12

When inflation falls, people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.E) A) and D)
F) A) and B)

Question 13

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 14

When inflation causes relative-price variability,

Accepted Answer

A)   consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
B)   consumer decisions are distorted, but markets are still able to efficiently allocate factors of production.
C)   consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired.
D)   consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.E) A) and B)
F) B) and D)

Question 15

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

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded decreases.
D)   decreases, so the quantity of money demanded increases.E) B) and D)
F) A) and D)

Question 16

Higher inflation makes relative prices

Accepted Answer

A)   more variable, making it more likely that resources will be allocated to their best use.
B)   more variable, making it less likely that resources will be allocated to their best use.
C)   less variable, making it more likely that resources will be allocated to their best use.
D)   less variable, making it less likely that resources will be allocated to their best use.E) C) and D)
F) B) and C)

Question 17

Which of the following is accurate?

Accepted Answer

A)   Monetary policy is neutral in both the short run and the long run.
B)   Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
C)   Monetary policy has profound effects on real variables in both the short run and the long run.
D)   Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.E) None of the above
F) C) and D)

Question 18

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)   the quantity theory and evidence from four hyperinflations during the 1920's
B)   the quantity theory but not evidence from four hyperinflations during the 1920's
C)   evidence from four hyperinflations during the 1920's but not the quantity theory
D)   neither the quantity theory nor evidence from four hyperinflation during the 1920'sE) A) and B)
F) A) and C)

Question 19

Relative­price variability is "automatic" when

Accepted Answer

A)   firms change prices only once in a while.
B)   firms change prices often.
C)   people increase the frequency of their trips to the bank.
D)   people decrease the frequency of their trips to the bank.E) A) and B)
F) C) and D)

Question 20

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)   5.1 percent
B)   3.1 percent
C)   2.1 percent
D)   2.4 percentE) C) and D)
F) B) and C)

Exam 17: Money Growth and Inflation

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
verified

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct Answer
verified

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Correct Answer
verified

Relativeprice variability is "automatic" when

Correct Answer
verified

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

Correct Answer
verified

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, the price level increases if

Correct Answer
verified

Which of the following is accurate?

Correct Answer
verified

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct Answer
verified

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Correct Answer
verified

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

Correct Answer
verified

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Correct Answer
verified

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct Answer
verified

Higher inflation makes relative prices

Correct Answer
verified

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Correct Answer
verified

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 35 percent. What is your after-tax real rate of interest?

Correct Answer
verified

When inflation causes relative-price variability,

Correct Answer
verified

Correct Answer
verified

When inflation falls, people

Correct Answer
verified

Monetary neutrality means that a change in the money supply

Correct Answer
verified

Exam 17: Money Growth and Inflation

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Correct AnswerverifiedShow Answer

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct AnswerverifiedShow Answer

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Correct AnswerverifiedShow Answer

Relative­price variability is "automatic" when

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, the price level increases if

Correct AnswerverifiedShow Answer

Which of the following is accurate?

Correct AnswerverifiedShow Answer

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct AnswerverifiedShow Answer

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Correct AnswerverifiedShow Answer

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Correct AnswerverifiedShow Answer

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 35 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

When inflation causes relative-price variability,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When inflation falls, people

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
verified

Correct Answer
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Correct Answer
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Relativeprice variability is "automatic" when

Correct Answer
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