Question 1

Which of the following best describes the inflation tax?

Accepted Answer

A)  It is a property tax.
B)  It is a sales tax.
C)  It is the revenue created when the government prints money.
D)  It is the revenue created when inflation is low.E) A) and C)
F) A) and B)

Question 2

According to the quantity equation, which of the following best describes the effects of an increase in the money supply?

Accepted Answer

A)  If velocity is stable, an increase in the money supply creates a proportional increase in nominal GDP but not in the price level.
B)  If velocity is stable, an increase in the money supply creates a proportional increase in the price level and real GDP.
C)  If velocity is stable, an increase in the money supply creates an increase in the real GDP but not in the price level.
D)  With constant money supply and velocity, an increase in the money supply creates a proportional increase in the price level and nominal GDPE) None of the above
F) A) and D)

Question 3

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following would shift money demand to the right?

Accepted Answer

A)  an increase in the price level
B)  a decrease in the price level
C)  a decrease in real GDP
D)  an increase in real GDPE) None of the above
F) A) and B)

Question 4

Assuming that V is constant, the quantity equation implies that an increase in M could result in which of the following?

Accepted Answer

A)  a decrease in the price level
B)  an increase in real GDP
C)  a decrease in nominal GDP
D)  an increase in the price levelE) B) and D)
F) B) and C)

Question 5

A rising price level eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 6

"The introduction of the automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Accepted Answer

The introduction of the automated teller...

Question 7

You put money in an account and earn a real interest rate of 8 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. Which of the following is your after-tax real rate of interest?

Accepted Answer

A)  1.8 percent
B)  2.8 percent
C)  3.8 percent
D)  5.8 percentE) None of the above
F) All of the above

Question 8

Which of the following best characterizes the effects of monetary policy?

Accepted Answer

A)  Monetary policy is neutral in both the short run and the long run; therefore, it does not affect real variables.
B)  Monetary policy is neutral in the long run, but 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) A) and B)
F) A) and C)

Question 9

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 10

When the value of money rises, what happens to the number of dollars needed to buy a representative basket of goods?

Accepted Answer

A)  It increases, and so the price level rises.
B)  It increases, and so the price level falls.
C)  It decreases, and so the price level rises.
D)  It decreases, and so the price level falls.E) B) and C)
F) None of the above

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 the price of a specific commodity
D)  by the change in the price of a specific commodityE) C) and D)
F) A) and C)

Question 13

According to the classical dichotomy, when the money supply doubles, which of the following also double(s) ?

Accepted Answer

A)  the value of the dollar
B)  nominal interest rates
C)  real interest rates
D)  the price levelE) C) and D)
F) A) and D)

Question 14

According to the quantity equation, if Y and M are constant, and V doubles, which of the following will happen to the price level?

Accepted Answer

A)  It will less than double.
B)  It will double.
C)  It will more than double.
D)  It might double, more than double, or less than double; more information is needed.E) All of the above
F) A) and B)

Question 15

According to which of the following theories are changes in nominal variables determined mostly by the quantity of money and the monetary system?

Accepted Answer

A)  both the classical dichotomy and the quantity theory of money
B)  the classical dichotomy, but not the quantity theory of money
C)  the quantity theory of money, but not the classical dichotomy
D)  neither the classical dichotomy nor the quantity theory of moneyE) C) and D)
F) A) and C)

Question 16

When the money market is represented in a diagram with the value of money on the vertical axis, how does the money supply curve shift from an increase in the money supply?

Accepted Answer

A)  It shifts to the right, lowering the price level.
B)  It shifts to the right, raising the price level.
C)  It shifts to the left, raising the price level.
D)  It shifts to the left, lowering the price level.E) A) and B)
F) B) and C)

Question 17

Which of the following is the immediate and longer-term effect of a decrease in the money supply?

Accepted Answer

A)  A decrease in the money supply creates an excess supply of money that is eliminated by rising prices.
B)  A decrease in the money supply creates an excess supply of money that is eliminated by falling prices.
C)  A decrease in the money supply creates an excess demand for money that is eliminated by rising prices.
D)  A decrease in the money supply creates an excess demand for money that is eliminated by falling prices.E) B) and D)
F) All of the above

Question 18

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage divided by the price level
B)  real output
C)  real interest rates
D)  the price levelE) B) and D)
F) C) and D)

Question 19

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Accepted Answer

A)  Evidence shows that money growth and inflation moved together, which supports the quantity theory.
B)  Evidence shows that money growth and inflation moved together, which does not support the quantity theory.
C)  Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory.
D)  Evidence shows that money growth and inflation did not move closely with each other, which does not support the quantity theory.E) A) and C)
F) None of the above

Question 20

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

The money demand curve is downward slopi...

Exam 11: Money Growth and Inflation

Which of the following best characterizes the effects of monetary policy?

Correct AnswerverifiedShow Answer

According to which of the following theories are changes in nominal variables determined mostly by the quantity of money and the monetary system?

Correct AnswerverifiedShow Answer

"The introduction of the automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

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

Which of the following best describes the inflation tax?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money market is represented in a diagram with the value of money on the vertical axis, how does the money supply curve shift from an increase in the money supply?

Correct AnswerverifiedShow Answer

According to the quantity equation, which of the following best describes the effects of an increase in the money supply?

Correct AnswerverifiedShow Answer

A rising price level eliminates an excess supply of money.

Correct AnswerverifiedShow Answer

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Correct AnswerverifiedShow Answer

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 AnswerverifiedThe money demand curve is downward slopi...View AnswerShow Answer

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Correct AnswerverifiedShow Answer

When the value of money rises, what happens to the number of dollars needed to buy a representative basket of goods?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, when the money supply doubles, which of the following also double(s) ?

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Which of the following is the immediate and longer-term effect of a decrease in the money supply?

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When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following would shift money demand to the right?

Correct AnswerverifiedShow Answer

You put money in an account and earn a real interest rate of 8 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. Which of the following is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

According to the quantity equation, if Y and M are constant, and V doubles, which of the following will happen to the price level?

Correct AnswerverifiedShow Answer

Which of the following can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

Assuming that V is constant, the quantity equation implies that an increase in M could result in which of the following?

Correct AnswerverifiedShow Answer

How can inflation be measured?

Correct AnswerverifiedShow Answer

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The introduction of the automated teller...
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The money demand curve is downward slopi...
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