Question 1

When the Consumer Price Index falls from 110 to 100

Accepted Answer

A)  there is inflation of 9.1% and the value of money decreases.
B)  there is deflation of 9.1% and the value of money increases.
C)  there is deflation of 10% and the value of money increases.
D)  there is inflation of 10% and the value of money decreases.E) None of the above
F) A) and B)

Question 2

The supply of money increases when

Accepted Answer

A)  the value of money increases.
B)  the interest rate increases.
C)  the Federal Reserve purchases bonds.
D)  velocity increases.E) C) and D)
F) B) and C)

Question 3

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)  Friedman Effect.
B)  Hume Effect.
C)  Fisher Effect.
D)  the inflation tax.E) None of the above
F) A) and D)

Question 4

According to the assumptions of the quantity theory of money,if the money supply increases 5 percent,then

Accepted Answer

A)  both the price level and real GDP would rise by 5 percent.
B)  the price level would rise by 5 percent and real GDP would be unchanged.
C)  the price level would be unchanged and real GDP would rise by 5 percent.
D)  both the price level and real GDP would be unchanged.E) B) and D)
F) A) and D)

Question 5

Suppose there is a surplus in the money market.

Accepted Answer

A)  This could have been created by an increase in the money supply.The value of money will rise.
B)  This could have been created by an increase in the money supply.The value of money will fall.
C)  This could have been created by a decrease in the money supply.The value of money will rise.
D)  This could have been created by a decrease in the money supply.The value of money will fall.E) A) and B)
F) A) and D)

Question 6

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)  dichotomous variables.
B)  nominal variables.
C)  classical variables.
D)  real variables.E) A) and C)
F) All of the above

Question 7

The inflation tax

Accepted Answer

A)  is an alternative to income taxes and government borrowing.
B)  taxes most those who hold the most money.
C)  is the revenue created when the government prints money.
D)  All of the above are correct.E) C) and D)
F) A) and B)

Question 8

As the Consumer Price Index increases,the value of money

Accepted Answer

A)  falls,so people hold more money to buy the goods and services they want.
B)  falls,so people hold less money to buy the goods and services they want.
C)  rises,so people hold more money to buy the goods and services they want.
D)  rises,so people hold less money to buy the goods and services they want.E) A) and B)
F) A) and C)

Question 9

The supply of money is determined by

Accepted Answer

A)  the price level.
B)  the Treasury and Congressional Budget Office.
C)  the Federal Reserve System.
D)  the demand for money.E) A) and B)
F) All of the above

Question 10

If M = 9,000,P = 6,and Y = 1,500,what is velocity?

Accepted Answer

A)  0.167.
B)  1.
C)  4.
D)  36.E) C) and D)
F) None of the above

Question 11

The inflation tax falls mostly heavily on

Accepted Answer

A)  those who hold a lot of currency and accounts for a large share of U.S.government revenue.
B)  those who hold a lot of currency but accounts for a small share of U.S.government revenue.
C)  those who hold little currency and accounts for a large share of U.S.government revenue.
D)  those who hold little currency but accounts for a small share of U.S.government revenue.E) B) and D)
F) None of the above

Question 12

If the value of a dollar falls,then the quantity of money demanded

Accepted Answer

A)  rises,meaning people want to hold more of their wealth in a liquid form.
B)  rises,meaning people desire to work more so their income rises.
C)  falls,meaning people want to hold less of their wealth in a liquid form.
D)  falls,meaning people want to work less so their income falls.E) A) and C)
F) None of the above

Question 13

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A)  are positively related,which is consistent with the quantity theory of money.
B)  are positively related,which is not consistent with the quantity theory of money.
C)  are not related in a discernible fashion,which is consistent with the quantity theory of money.
D)  are not related in a discernible fashion,which is not consistent with the quantity theory of money.E) A) and D)
F) B) and C)

Question 14

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

Accepted Answer

A)  supply of money,causing people to spend more.
B)  supply of money,causing people to spend less.
C)  demand for money,causing people to spend more.
D)  demand for money,causing people to spend less.E) A) and B)
F) A) and C)

Question 15

Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while his money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Accepted Answer

A)  3.5 percent and a real interest rate of 5 percent.
B)  3.5 percent and a real interest rate of 2 percent.
C)  5 percent and a real interest rate of 3.5 percent
D)  5 percent and a real interest rate of 2 percentE) None of the above
F) All of the above

Question 16

In the U.S. ,from the early 1980s through the early 1990s,

Accepted Answer

A)  both inflation and nominal interest rates rose.
B)  both inflation and nominal interest rates fell.
C)  the inflation rate fell and the nominal interest rate rose.
D)  the inflation rate rose and the nominal interest rate fell.E) B) and C)
F) All of the above

Question 17

Printing money to finance government expenditures

Accepted Answer

A)  causes the value of money to rise.
B)  imposes a tax on everyone who holds money.
C)  is the principal method by which the U.S.government finances its expenditures.
D)  causes prices to fall.E) A) and C)
F) B) and C)

Question 18

According to the quantity theory of money,a 3 percent increase in the money supply

Accepted Answer

A)  causes the price level to rise by 3 percent.
B)  causes the price level to rise by less than 3 percent.
C)  leaves the price level unchanged.
D)  causes the price level to fall by 3 percent.E) B) and C)
F) B) and D)

Question 19

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)  increase employment.
B)  increase the price level.
C)  increase the incentive to save.
D)  increase the real interest rate.E) B) and C)
F) A) and B)

Question 20

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A)  is irrelevant for understanding the determinants of nominal and real variables.
B)  determines nominal variables,but not real variables.
C)  determines real variables,but not nominal variables.
D)  is a determinant of both real and nominal variables.E) A) and B)
F) All of the above

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

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

Correct AnswerverifiedShow Answer

Monetary neutrality implies that an increase in the quantity of money will

Correct AnswerverifiedShow Answer

The supply of money increases when

Correct AnswerverifiedShow Answer

Suppose there is a surplus in the money market.

Correct AnswerverifiedShow Answer

As the Consumer Price Index increases,the value of money

Correct AnswerverifiedShow Answer

According to the quantity theory of money,a 3 percent increase in the money supply

Correct AnswerverifiedShow Answer

In the U.S. ,from the early 1980s through the early 1990s,

Correct AnswerverifiedShow Answer

The inflation tax falls mostly heavily on

Correct AnswerverifiedShow Answer

Printing money to finance government expenditures

Correct AnswerverifiedShow Answer

The classical dichotomy refers to the idea that the supply of money

Correct AnswerverifiedShow Answer

Economic variables whose values are measured in monetary units are called

Correct AnswerverifiedShow Answer

If the value of a dollar falls,then the quantity of money demanded

Correct AnswerverifiedShow Answer

The evidence from hyperinflations indicates that money growth and inflation

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money,if the money supply increases 5 percent,then

Correct AnswerverifiedShow Answer

Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while his money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Correct AnswerverifiedShow Answer

The supply of money is determined by

Correct AnswerverifiedShow Answer

If M = 9,000,P = 6,and Y = 1,500,what is velocity?

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

When the Consumer Price Index falls from 110 to 100

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified