Exam 11: Money Growth and Inflation

Last year, Tealandia produced 60,000 bags of green tea, which sold at 10 units each of Tealandia's currency-the leaf. Tealandia's money supply was 15,000. What was the velocity of money in Tealandia?

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

Which statement best describes the effects of an open-market operation undertaken by the Bank of Canada?

Suppose that the Government of Canada unexpectedly decided to pay off its debt by printing new money. What would happen?

According to the quantity equation, if Y and M are constant and V doubles, what factor does the price level multiply by?

If velocity and output were nearly constant, the inflation rate would be equal to the money supply growth rate times what factor?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the long-run effects of an increase in money supply?

Casimir purchased one share of Norcet stock for $100 in year 1 and sold that share in year 2 for $200. The inflation rate between year 1 and year 2 was 50 percent. If the capital gains tax is imposed at a rate of 50 percent, what is Casimir's after-tax real capital gain?

Which term refers to economic variables whose values are measured in monetary units?

If the money supply growth rate permanently increased from 4 percent to 10 percent, what would we expect to happen to the inflation rate and the nominal interest rate?

Which statement best describes the evolution of inflation in Canada?

Why is the money supply curve vertical?

According to the quantity equation, if Y doubles, V is constant, and M doubles, what factor does the price level multiply by?

(Challenging) Let ÄX denote a small change in the variable X. Starting from the quantity equation MV = PY, show that the following relation between percentage changes holds: ÄM/M + ÄV/V = ÄP/P + ÄY/Y. (Note: It should be emphasized that this relationship holds for small changes, say less than 5 percent. The larger the changes, the less precise are the results derived from this relationship.)

Monica buys a bond for $750 and then sells it later for $950. What type of gain is Monica's experience?

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

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

What do economists think about high and moderate inflation?

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Over the past 70 years, what was the approximate average annual inflation rate?