Question 1

The quantity theory of money assumes that real GDP:

Accepted Answer

A)  increases with the quantity of money in the economy. 
B)  decreases with the quantity of money in the economy. 
C)  is relatively stable. 
D)  is difficult to predict. 
A)  increases with the quantity of money in the economy. 
B)  decreases with the quantity of money in the economy. 
C)  is relatively stable. 
D)  is difficult to predict.

Question 2

When the government monetizes its debt, the results are:

Accepted Answer

A)  higher inflation and benefits for holders of government bonds. 
B)  lower inflation and benefits for holders of government bonds. 
C)  higher inflation and losses for holders of government bonds. 
D)  lower inflation and losses for holders of government bonds. 
A)  higher inflation and benefits for holders of government bonds. 
B)  lower inflation and benefits for holders of government bonds. 
C)  higher inflation and losses for holders of government bonds. 
D)  lower inflation and losses for holders of government bonds.

Question 3

Deflation always implies the inflation rate is negative.

Accepted Answer

A) True 
 B)False

Question 4

What do we call an increase in the average level of prices in an economy?

Accepted Answer

A)  recession 
B)  disinflation 
C)  deflation 
D)  inflation 
A)  recession 
B)  disinflation 
C)  deflation 
D)  inflation

Question 5

The velocity of money is:

Accepted Answer

A)  how fast the price level is rising. 
B)  how fast the inflation rate is rising. 
C)  the rate at which money can be printed. 
D)  the average number of times a dollar is spent on final goods and services. 
A)  how fast the price level is rising. 
B)  how fast the inflation rate is rising. 
C)  the rate at which money can be printed. 
D)  the average number of times a dollar is spent on final goods and services.

Question 6

In a small economy, the level of nominal GDP is $4,000,000. The current level of money supply is $500,000. Velocity is stable, and the growth rate of real GDP is expected to be 2% over the next year. Money is expected to grow at 3%. Use this information to answer the following questions:
A) What is the velocity of money circulation in this economy?
B) What is the expected inflation rate in this economy?

Accepted Answer

A) velocity = nominal GDP ÷ money supply

Question 7

Suppose real GDP and velocity of money remain constant. If money supply doubles, then the inflation rate will be:

Accepted Answer

A)  10%. 
B)  50%. 
C)  100%. 
D)  200%. 
A)  10%. 
B)  50%. 
C)  100%. 
D)  200%.

Question 8

Use the following to answer questions: Table: Inflation in Poland $$\begin{array} { l c } 
\hline \text { Year } & \text { Inflation Rate (Annual \% Change) } \
\hline 1985 & 15.1 \% \
1990 & 585.8 \% \
1999 & 7.3 \% \
2002 & 1.9 \% \
2003 & 0.8 \% \
\hline
\end{array}$$ Source: International Monetary Fund (www.imf.org)
-(Table: Inflation in Poland) This table shows actual inflation data for different periods in Poland. Which year was deflationary?

Accepted Answer

A)  1990 
B)  1999 
C)  2003 
D)  No year was deflationary. 
A)  1990 
B)  1999 
C)  2003 
D)  No year was deflationary.

Question 9

The situation in which the government pays off its debts by printing money is called:

Accepted Answer

A)  a money illusion. 
B)  monetizing the debt. 
C)  disinflation. 
D)  the quantity theory of money. 
A)  a money illusion. 
B)  monetizing the debt. 
C)  disinflation. 
D)  the quantity theory of money.

Question 10

The quantity theory of money assumes that the velocity of money:

Accepted Answer

A)  increases with the quantity of money in the economy. 
B)  decreases with the quantity of money in the economy. 
C)  is relatively stable. 
D)  is difficult to predict. 
A)  increases with the quantity of money in the economy. 
B)  decreases with the quantity of money in the economy. 
C)  is relatively stable. 
D)  is difficult to predict.

Question 11

Money is neutral in the long run but not in the short run.

Accepted Answer

A) True 
 B)False

Question 12

If the money supply is $375 million, the velocity of money is 5, and real GDP is $12.5 million, what is the average price level?

Accepted Answer

A)  50 
B)  100 
C)  150 
D)  12.5 
A)  50 
B)  100 
C)  150 
D)  12.5

Question 13

Because of money illusion, inflation usually confuses:

Accepted Answer

A)  consumers. 
B)  workers. 
C)  firms. 
D)  consumers, workers, and firms. 
A)  consumers. 
B)  workers. 
C)  firms. 
D)  consumers, workers, and firms.

Question 14

Inflation refers to an increase in the:

Accepted Answer

A)  relative prices of some goods as compared to other goods. 
B)  average level of prices. 
C)  standard of living. 
D)  average level of nominal output. 
A)  relative prices of some goods as compared to other goods. 
B)  average level of prices. 
C)  standard of living. 
D)  average level of nominal output.

Question 15

Which of the following identities represents the quantity theory of money?

Accepted Answer

A)  MP = Yv 
B)  Mv = PYR 
C)  P = M 
D)  Mv = YR 
A)  MP = Yv 
B)  Mv = PYR 
C)  P = M 
D)  Mv = YR

Question 16

Use the following to answer questions: Table: Consumer Price Index $$\begin{array} { l c } 
\hline \text { Year } & \begin{array} { l } 
\text { CPI } \
\text { (End-of-Yea } \
\text { r Value) }
\end{array} \
\hline 2005 & 195.3 \
2006 & 201.6 \
2007 & 207.3 \
2008 & 215.3 \
2009 & 214.5 \
2010 & 218.1 \
\hline
\end{array}$$
-(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience deflation?

Accepted Answer

A)  2007 only 
B)  2009 only 
C)  both 2007 and 2009 
D)  neither 2007 nor 2009 
A)  2007 only 
B)  2009 only 
C)  both 2007 and 2009 
D)  neither 2007 nor 2009

Question 17

In the long run, an increase in the money supply will cause real GDP to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  deflate. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  deflate.

Question 18

Nobel Laureate Milton Friedman said, "Inflation is always and everywhere an unemployment phenomenon."

Accepted Answer

A) True 
 B)False

Question 19

What is the equation for the quantity theory of money? What does this theory imply about the cause of inflation in the long run?

Accepted Answer

The quantity theory of money comes from

Question 20

In times when prices rise unexpectedly:

Accepted Answer

A)  producers are made better off at the expense of consumers. 
B)  consumers are made better off at the expense of producers. 
C)  lenders are made better off at the expense of borrowers. 
D)  borrowers are made better off at the expense of lenders. 
A)  producers are made better off at the expense of consumers. 
B)  consumers are made better off at the expense of producers. 
C)  lenders are made better off at the expense of borrowers. 
D)  borrowers are made better off at the expense of lenders.

The quantity theory of money assumes that real GDP:

When the government monetizes its debt, the results are:

Deflation always implies the inflation rate is negative.

What do we call an increase in the average level of prices in an economy?

The velocity of money is:

Suppose real GDP and velocity of money remain constant. If money supply doubles, then the inflation rate will be:

The situation in which the government pays off its debts by printing money is called:

The quantity theory of money assumes that the velocity of money:

Money is neutral in the long run but not in the short run.

If the money supply is $375 million, the velocity of money is 5, and real GDP is $12.5 million, what is the average price level?

Because of money illusion, inflation usually confuses:

Inflation refers to an increase in the:

Which of the following identities represents the quantity theory of money?

In the long run, an increase in the money supply will cause real GDP to:

Nobel Laureate Milton Friedman said, "Inflation is always and everywhere an unemployment phenomenon."

What is the equation for the quantity theory of money? What does this theory imply about the cause of inflation in the long run?

In times when prices rise unexpectedly:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Exam 12: Inflation and the Quantity Theory of Money

The quantity theory of money assumes that real GDP:

When the government monetizes its debt, the results are:

Deflation always implies the inflation rate is negative.

What do we call an increase in the average level of prices in an economy?

The velocity of money is:

Suppose real GDP and velocity of money remain constant. If money supply doubles, then the inflation rate will be:

The situation in which the government pays off its debts by printing money is called:

The quantity theory of money assumes that the velocity of money:

Money is neutral in the long run but not in the short run.

If the money supply is $375 million, the velocity of money is 5, and real GDP is $12.5 million, what is the average price level?

Because of money illusion, inflation usually confuses:

Inflation refers to an increase in the:

Which of the following identities represents the quantity theory of money?

In the long run, an increase in the money supply will cause real GDP to:

Nobel Laureate Milton Friedman said, "Inflation is always and everywhere an unemployment phenomenon."

What is the equation for the quantity theory of money? What does this theory imply about the cause of inflation in the long run?

In times when prices rise unexpectedly:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters