Question 1

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 2

If the economy unexpectedly went from inflation to deflation,

Accepted Answer

A)  both debtors and creditors would have reduced real wealth.
B)  both debtors and creditors would have increased real wealth.
C)  debtors would gain at the expense of creditors.
D)  creditors would gain at the expense of debtors.E) All of the above
F) A) and B)

Question 3

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) All of the above

Question 4

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 5

The Fisher effect

Accepted Answer

A)  says the government can generate revenue by printing money.
B)  says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)  explains how higher money supply growth leads to higher inflation.
D)  explains how prices adjust to obtain equilibrium in the money market.E) A) and D)
F) None of the above

Question 6

Which of the following is an example of the menu costs of inflation?

Accepted Answer

A)  ​Tito's Restaurant has to print new menus to update its prices compared to other prices in the economy
B)  Beto sells stocks and earns a real capital gain of $50, but is taxed for the nominal capital gain of $75
C)  ​During Bolivia's hyperinflation, workers rushed to immediately convert their wages from pesos to black-market dollars
D)  The after-tax real interest rate is lower when inflation is higherE) All of the above
F) A) and B)

Question 7

As the price level rises, the value of money

Accepted Answer

A)  increases, so people must hold less money to purchase goods and services.
B)  increases, so people must hold more money to purchase goods and services.
C)  decreases, so people must hold more money to purchase goods and services.
D)  decreases, so people must hold less money to purchase goods and services.E) None of the above
F) A) and B)

Question 8

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Accepted Answer

He was expecting it ...

Question 9

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

Accepted Answer

A)  falls to half its original level.
B)  does not change.
C)  doubles.
D)  more than doubles.E) A) and B)
F) A) and C)

Question 10

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Accepted Answer

A)  excess demand for money, so the price level will rise.
B)  excess demand for money, so the price level will fall.
C)  excess supply of money, so the price level will rise.
D)  excess supply of money, so the price level will fall.E) A) and C)
F) A) and B)

Question 11

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Accepted Answer

A)  6.75.
B)  3.00.
C)  1.33.
D)  1.50.E) A) and D)
F) None of the above

Question 12

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve

Accepted Answer

A)  shifts rightward, causing the value of money measured in terms of goods and services to rise.
B)  shifts rightward, causing the value of money measured in terms of goods and services to fall.
C)  shifts leftward, causing the value of money measured in terms of goods and services to rise.
D)  shifts leftward, causing the value of money measured in terms of goods and services to fall.E) None of the above
F) B) and C)

Question 13

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 14

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 15

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Accepted Answer

A)  $250.
B)  $25,000.
C)  $1,000.
D)  $6,250.E) A) and B)
F) A) and C)

Question 16

The classical theory of inflation

Accepted Answer

A)  is also known as the quantity theory of money.
B)  was developed by some of the earliest economic thinkers.
C)  is used by most modern economists to explain the long-run determinants of the inflation rate.
D)  All of the above are correct.E) C) and D)
F) A) and B)

Question 17

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds, th...

Question 18

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 19

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) B) and C)
F) A) and B)

Question 20

When the price level falls, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases, so the value of money rises.
B)  increases, so the value of money falls.
C)  decreases, so the value of money rises.
D)  decreases, so the value of money falls.E) A) and B)
F) B) and D)

Exam 30: Money Growth and Inflation

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Correct AnswerverifiedShow Answer

List and define any two of the costs of high inflation.

Correct AnswerverifiedThe costs include:Shoeleather costs: th...View AnswerShow Answer

As the price level rises, the value of money

Correct AnswerverifiedShow Answer

If the economy unexpectedly went from inflation to deflation,

Correct AnswerverifiedShow Answer

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

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Which of the following is an example of the menu costs of inflation?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Correct AnswerverifiedShow Answer

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Correct AnswerverifiedShow Answer

When the price level falls, the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve

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The Fisher effect

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

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Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds, th...View AnswerShow 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

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

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

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Correct AnswerverifiedHe was expecting it ...View AnswerShow Answer

An excess supply of money is eliminated by a falling price level

Correct AnswerverifiedShow Answer

The classical theory of inflation

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The costs include:
Shoeleather costs: th...
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When the Fed sells government bonds, th...
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He was expecting it ...
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