Question 1

Define each of the symbols and explain the meaning of M×V = P×Y.

Accepted Answer

M is the quantity of money, V is the vel

Question 2

Suppose an economy produces only ice cream cones.If the price level rises, the value of currency

Accepted Answer

A) rises, because one unit of currency buys more ice cream cones. 
B) rises, because one unit of currency buys fewer ice cream cones. 
C) falls, because one unit of currency buys more ice cream cones. 
D) falls, because one unit of currency buys fewer ice cream cones. 
A) rises, because one unit of currency buys more ice cream cones. 
B) rises, because one unit of currency buys fewer ice cream cones. 
C) falls, because one unit of currency buys more ice cream cones. 
D) falls, because one unit of currency buys fewer ice cream cones.

Question 3

The term hyperinflation refers to

Accepted Answer

A) the spread of inflation from one country to others. 
B) a decrease in the inflation rate. 
C) a period of very high inflation. 
D) inflation accompanied by a recession. 
A) the spread of inflation from one country to others. 
B) a decrease in the inflation rate. 
C) a period of very high inflation. 
D) inflation accompanied by a recession.

Question 4

Deflation

Accepted Answer

A) increases incomes and enhances the ability of debtors to pay off their debts. 
B) increases incomes and reduces the ability of debtors to pay off their debts. 
C) decreases incomes and enhances the ability of debtors to pay off their debts. 
D) decreases incomes and reduces the ability of debtors to pay off their debts. 
A) increases incomes and enhances the ability of debtors to pay off their debts. 
B) increases incomes and reduces the ability of debtors to pay off their debts. 
C) decreases incomes and enhances the ability of debtors to pay off their debts. 
D) decreases incomes and reduces the ability of debtors to pay off their debts.

Question 5

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs.This is an example of

Accepted Answer

A) costs due to inflation induced relative price variability, which misallocates resources. 
B) menu costs. 
C) shoeleather costs. 
D) costs due to inflation induced tax distortions. 
E) costs due to confusion and inconvenience. 
A) costs due to inflation induced relative price variability, which misallocates resources. 
B) menu costs. 
C) shoeleather costs. 
D) costs due to inflation induced tax distortions. 
E) costs due to confusion and inconvenience.

Question 7

An increase in the price level is the same as a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Question 8

The quantity equation states that

Accepted Answer

A) Money×real output = velocity×price level. 
B) Money×velocity = price level×real output. 
C) None of these answers. 
D) Money×price level = velocity×real output. 
A) Money×real output = velocity×price level. 
B) Money×velocity = price level×real output. 
C) None of these answers. 
D) Money×price level = velocity×real output.

Question 9

If real output in an economy is 1,000 units of goods per year, the money supply is R300, and each euro is spent 3 times per year, then the average price of goods is

Accepted Answer

A) R0.90 per unit. 
B) R1.11 per unit. 
C) R1.50 per unit. 
D) R1.33 per unit. 
A) R0.90 per unit. 
B) R1.11 per unit. 
C) R1.50 per unit. 
D) R1.33 per unit.

Question 10

If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

Accepted Answer

A) True 
 B)False

Question 11

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 12

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Accepted Answer

A) Costs due to inflation induced tax distortions. 
B) Arbitrary redistributions of wealth. 
C) Shoeleather costs. 
D) Menu costs. 
E) Costs due to confusion and inconvenience. 
A) Costs due to inflation induced tax distortions. 
B) Arbitrary redistributions of wealth. 
C) Shoeleather costs. 
D) Menu costs. 
E) Costs due to confusion and inconvenience.

Question 13

Some economists feel inflation is bad

Accepted Answer

A) because it reduces real GDP so much. 
B) only if it is persistent. 
C) because it redistributes income arbitrarily. 
D) only if it is anticipated. 
A) because it reduces real GDP so much. 
B) only if it is persistent. 
C) because it redistributes income arbitrarily. 
D) only if it is anticipated.

Question 14

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha

Question 15

In the quantity theory of money

Accepted Answer

A) prices are rigid. 
B) both velocity of money and real output are variable. 
C) changes in the money supply cause changes in velocity of money. 
D) the velocity of money is assumed to be stable. 
A) prices are rigid. 
B) both velocity of money and real output are variable. 
C) changes in the money supply cause changes in velocity of money. 
D) the velocity of money is assumed to be stable.

Question 16

Economists agree that

Accepted Answer

A) neither high inflation nor moderate inflation is very costly. 
B) both high and moderate inflation are quite costly. 
C) high inflation is costly, but they disagree about the costs of moderate inflation. 
D) moderate inflation is as costly as high inflation. 
A) neither high inflation nor moderate inflation is very costly. 
B) both high and moderate inflation are quite costly. 
C) high inflation is costly, but they disagree about the costs of moderate inflation. 
D) moderate inflation is as costly as high inflation.

Question 17

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 per cent to 10 per cent.

Accepted Answer

Inflation and nominal interest

Question 18

An inflation tax

Accepted Answer

A) is usually employed by governments with balanced budgets. 
B) None of these answers. 
C) is an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products. 
D) is a tax borne only by people who hold interest bearing savings accounts. 
E) is a tax on people who hold money. 
A) is usually employed by governments with balanced budgets. 
B) None of these answers. 
C) is an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products. 
D) is a tax borne only by people who hold interest bearing savings accounts. 
E) is a tax on people who hold money.

Define each of the symbols and explain the meaning of M×V = P×Y.

Suppose an economy produces only ice cream cones.If the price level rises, the value of currency

The term hyperinflation refers to

Deflation

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs.This is an example of

An increase in the price level is the same as a decrease in the value of money.

The quantity equation states that

If real output in an economy is 1,000 units of goods per year, the money supply is R300, and each euro is spent 3 times per year, then the average price of goods is

If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Some economists feel inflation is bad

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

In the quantity theory of money

Economists agree that

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 per cent to 10 per cent.

An inflation tax

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

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Exam 10: Money Growth and Inflation

Define each of the symbols and explain the meaning of M×V = P×Y.

Suppose an economy produces only ice cream cones.If the price level rises, the value of currency

The term hyperinflation refers to

Deflation

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs.This is an example of

An increase in the price level is the same as a decrease in the value of money.

The quantity equation states that

If real output in an economy is 1,000 units of goods per year, the money supply is R300, and each euro is spent 3 times per year, then the average price of goods is

If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Some economists feel inflation is bad

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

In the quantity theory of money

Economists agree that

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 per cent to 10 per cent.

An inflation tax

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters