Question 1

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 2

The costs of changing price tags and price listings are known as

Accepted Answer

A)  inflation-induced tax distortions.
B)  relative-price variability costs.
C)  shoeleather costs.
D)  menu costs.E) None of the above
F) B) and C)

Question 3

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 4

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the price level increases if money demand shifts

Accepted Answer

A)  right and decreases if money supply shifts right.
B)  right and decreases if money supply shifts left.
C)  left and decreases if money supply shifts right.
D)  left and decreases if money supply shifts left.E) A) and B)
F) None of the above

Question 5

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Accepted Answer

An increase in inflation reduc...

Question 6

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 7

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 8

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Accepted Answer

Higher inflation gives people ...

Question 9

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 10

Relative-price variability

Accepted Answer

A)  rises with inflation, leading to an improved allocation of resources.
B)  rises with inflation, leading to a misallocation of resources.
C)  falls with inflation, leading to an improved allocation of resources.
D)  falls with inflation, leading to a misallocation of resources.E) C) and D)
F) B) and D)

Question 11

In order to maintain stable prices, a central bank must

Accepted Answer

A)  maintain low interest rates.
B)  keep unemployment low.
C)  tightly control the money supply.
D)  sell indexed bonds.E) B) and D)
F) C) and D)

Question 12

According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to _____ and real GDP to _____.

Accepted Answer

double, re...

Question 13

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Accepted Answer

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

Question 14

The increase in the overall level of prices is known as _____.

Accepted Answer

The answer of The increase in the overall level of...

Question 15

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Accepted Answer

increases, a movemen...

Question 16

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) A) and C)

Question 17

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 18

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

nominal, r...

Question 19

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

The answer of One year ago Sam purchased bonds for...

Question 20

If Y and V are constant and M doubles, the quantity equation implies that the price level

Accepted Answer

A)  more than doubles.
B)  changes but less than doubles.
C)  doubles.
D)  does not change.E) B) and C)
F) A) and D)

Exam 30: Money Growth and Inflation

According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to _____ and real GDP to _____.

Correct Answerverifieddouble, re...View AnswerShow 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 AnswerverifiedShow Answer

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the price level increases if money demand shifts

Correct AnswerverifiedShow Answer

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Correct AnswerverifiedHigher inflation gives people ...View AnswerShow Answer

In United States history there were long periods when most prices fell.

Correct AnswerverifiedShow Answer

The costs of changing price tags and price listings are known as

Correct AnswerverifiedShow Answer

The increase in the overall level of prices is known as _____.

Correct AnswerverifiedShow Answer

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

If Y and V are constant and M doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Correct AnswerverifiedShow Answer

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Correct AnswerverifiedShow Answer

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Correct AnswerverifiedShow Answer

Relative-price variability

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

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Correct AnswerverifiedShow Answer

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Correct Answerverifiedincreases, a movemen...View AnswerShow Answer

In order to maintain stable prices, a central bank must

Correct AnswerverifiedShow Answer

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Correct AnswerverifiedAn increase in inflation reduc...View AnswerShow Answer

The source of all four classic hyperinflations was high rates of money growth.

Correct AnswerverifiedShow Answer

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Correct Answerverifiednominal, r...View AnswerShow Answer

According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to _ and real GDP to _.

Correct Answer
verified
double, re...
View 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
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Higher inflation gives people ...
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An increase in the price level means that a dollar buys goods and services so the value of a dollar .

Correct Answer
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A decrease in the value of money the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as __.

Correct Answer
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increases, a movemen...
View Answer

Correct Answer
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An increase in inflation reduc...
View Answer

Correct Answer
verified

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

Correct Answer
verified
nominal, r...
View Answer