Question 1

Suppose ice cream cones costs $3.Molly holds $60.What is the real value of the money she holds?

Accepted Answer

A) $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold more dollars. 
B) $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold fewer dollars. 
C) 20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold more dollars. 
D) 20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold fewer dollars. 
A) $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold more dollars. 
B) $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold fewer dollars. 
C) 20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold more dollars. 
D) 20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 2

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.  
-Refer to Figure 30-2.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A) an increase in the value of money 
B) a decrease in the price level 
C) an open-market purchase of bonds by the Federal Reserve 
D) None of the above is correct. 
A) an increase in the value of money 
B) a decrease in the price level 
C) an open-market purchase of bonds by the Federal Reserve 
D) None of the above is correct.

Question 3

If P = 2 and Y = 1000,then which of the following pairs of values are possible?

Accepted Answer

A) M = $500,V = 4. 
B) M = $250,V = 8. 
C) M = $1,000,V = 2. 
D) All of the above are correct. 
A) M = $500,V = 4. 
B) M = $250,V = 8. 
C) M = $1,000,V = 2. 
D) All of the above are correct.

Question 4

The velocity of money is

Accepted Answer

A) the rate at which the Fed puts money into the economy. 
B) the same thing as the long-term growth rate of the money supply. 
C) the money supply divided by nominal GDP. 
D) the average number of times per year a dollar is spent. 
A) the rate at which the Fed puts money into the economy. 
B) the same thing as the long-term growth rate of the money supply. 
C) the money supply divided by nominal GDP. 
D) the average number of times per year a dollar is spent.

Question 5

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Accepted Answer

A) unemployment 
B) the price level 
C) nominal interest rates 
D) All of the above are correct. 
A) unemployment 
B) the price level 
C) nominal interest rates 
D) All of the above are correct.

Question 6

Other things the same,an increase in velocity means that

Accepted Answer

A) transactions per dollar increase so the price level rises. 
B) transactions per dollar increase so the price level falls. 
C) transactions per dollar decrease so the price level rises. 
D) transactions per dollar decrease so the price level falls. 
A) transactions per dollar increase so the price level rises. 
B) transactions per dollar increase so the price level falls. 
C) transactions per dollar decrease so the price level rises. 
D) transactions per dollar decrease so the price level falls.

Question 7

According to the principle of monetary neutrality,a decrease in the money supply will not change

Accepted Answer

A) nominal GDP. 
B) the price level. 
C) unemployment. 
D) All of the above are correct. 
A) nominal GDP. 
B) the price level. 
C) unemployment. 
D) All of the above are correct.

Question 8

Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A) The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B) The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C) The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D) The nominal interest rate was 6 percent and the inflation rate was 7.5 percent. 
A) The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B) The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C) The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D) The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.

Question 9

Monetary neutrality means that a change in the money supply

Accepted Answer

A) does not change real variables.Most economists think this is a good description of the economy in the short run and in the long run. 
B) does not change real variables.Most economists think this is a good description of the economy in the long run but not the short run. 
C) does not change nominal variables.Most economists think this is a good description of the economy in the short-run and the long run. 
D) does not change nominal variables.Most economists think this is a good description of the economy in the long run but not the short run. 
A) does not change real variables.Most economists think this is a good description of the economy in the short run and in the long run. 
B) does not change real variables.Most economists think this is a good description of the economy in the long run but not the short run. 
C) does not change nominal variables.Most economists think this is a good description of the economy in the short-run and the long run. 
D) does not change nominal variables.Most economists think this is a good description of the economy in the long run but not the short run.

Question 10

In the long run,money demand and money supply determine

Accepted Answer

A) the value of money and the real interest rate. 
B) the value of money but not the real interest rate. 
C) the real interest rate but not the value of money. 
D) neither the value of money nor the real interest rate. 
A) the value of money and the real interest rate. 
B) the value of money but not the real interest rate. 
C) the real interest rate but not the value of money. 
D) neither the value of money nor the real interest rate.

Question 11

If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent,what is the real interest rate?

Accepted Answer

A) 8 percent 
B) 2 percent 
C) 15 percent 
D) 1.7 percent 
A) 8 percent 
B) 2 percent 
C) 15 percent 
D) 1.7 percent

Question 12

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

Accepted Answer

A) velocity rose.If monetary neutrality holds the rise in velocity increased the ratio M/P. 
B) velocity rose.If monetary neutrality holds the rise in velocity decreased the ratio M/P. 
C) velocity fell.If monetary neutrality holds the fall in velocity increased the ratio M/P. 
D) velocity fell.If monetary neutrality holds the fall in velocity decreased the ratio M/P. 
A) velocity rose.If monetary neutrality holds the rise in velocity increased the ratio M/P. 
B) velocity rose.If monetary neutrality holds the rise in velocity decreased the ratio M/P. 
C) velocity fell.If monetary neutrality holds the fall in velocity increased the ratio M/P. 
D) velocity fell.If monetary neutrality holds the fall in velocity decreased the ratio M/P.

Question 13

On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

Accepted Answer

A) and a price index are both real variables. 
B) and a price index are both nominal variables. 
C) are real variables,and a price index is a nominal variable. 
D) are nominal variables,and a price index is a real variable 
A) and a price index are both real variables. 
B) and a price index are both nominal variables. 
C) are real variables,and a price index is a nominal variable. 
D) are nominal variables,and a price index is a real variable

Question 14

Which of the following is correct?

Accepted Answer

A) The Continental Congress used the inflation tax to help finance the American Revolution. 
B) The inflation is today a principal source of revenue for the U.S.government. 
C) There is no way a person can avoid the inflation tax. 
D) Governments can only raise revenues through taxation. 
A) The Continental Congress used the inflation tax to help finance the American Revolution. 
B) The inflation is today a principal source of revenue for the U.S.government. 
C) There is no way a person can avoid the inflation tax. 
D) Governments can only raise revenues through taxation.

Question 15

When the money market is drawn with the value of money on the vertical axis,a decrease in the money supply leads people to

Accepted Answer

A) spend more so the value of a dollar rises. 
B) spend more so the value of a dollar falls. 
C) spend less so the value of a dollar rises. 
D) spend less so the value of a dollar falls. 
A) spend more so the value of a dollar rises. 
B) spend more so the value of a dollar falls. 
C) spend less so the value of a dollar rises. 
D) spend less so the value of a dollar falls.

Question 16

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.  
-Refer to Figure 30-3.If the relevant money-supply curve is the one labeled MS2,then

Accepted Answer

A) when the money market is in equilibrium,one dollar purchases about one-third of a basket of goods and services. 
B) when the money market is in equilibrium,one unit of goods and services sells for 33 cents. 
C) there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D) All of the above are correct. 
A) when the money market is in equilibrium,one dollar purchases about one-third of a basket of goods and services. 
B) when the money market is in equilibrium,one unit of goods and services sells for 33 cents. 
C) there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D) All of the above are correct.

Question 17

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 18

Last year,Jane spent all of her income to purchase 200 units of corn at $5 per unit.This year,she spent all of her income to purchase 180 units of corn at $6 per unit.

Accepted Answer

A) Jane's nominal income and real income decreased this year. 
B) Jane's nominal income decreased this year,but her real income increased. 
C) Jane's nominal income and real income increased this year. 
D) Jane's nominal income increased this year,but her real income decreased. 
A) Jane's nominal income and real income decreased this year. 
B) Jane's nominal income decreased this year,but her real income increased. 
C) Jane's nominal income and real income increased this year. 
D) Jane's nominal income increased this year,but her real income decreased.

Question 19

The value of money falls as the price level

Accepted Answer

A) rises,because the number of dollars needed to buy a representative basket of goods rises. 
B) rises,because the number of dollars needed to buy a representative basket of goods falls. 
C) falls,because the number of dollars needed to buy a representative basket of goods rises. 
D) falls,because the number of dollars needed to buy a representative basket of goods falls. 
A) rises,because the number of dollars needed to buy a representative basket of goods rises. 
B) rises,because the number of dollars needed to buy a representative basket of goods falls. 
C) falls,because the number of dollars needed to buy a representative basket of goods rises. 
D) falls,because the number of dollars needed to buy a representative basket of goods falls.

Question 20

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

Accepted Answer

A) a nominal interest rate of 5 percent and an inflation rate of 4 percent. 
B) a nominal interest rate of 4 percent and an inflation rate of 3 percent. 
C) a nominal interest rate of 8 percent and an inflation rate of 1 percent. 
D) a nominal interest rate of 14 percent and an inflation rate of 2 percent. 
A) a nominal interest rate of 5 percent and an inflation rate of 4 percent. 
B) a nominal interest rate of 4 percent and an inflation rate of 3 percent. 
C) a nominal interest rate of 8 percent and an inflation rate of 1 percent. 
D) a nominal interest rate of 14 percent and an inflation rate of 2 percent.

Exam 17: Money Growth and Inflation: The Classical Theory of Inflation

Suppose ice cream cones costs $3.Molly holds $60.What is the real value of the money she holds?

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-2.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

If P = 2 and Y = 1000,then which of the following pairs of values are possible?

The velocity of money is

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Other things the same,an increase in velocity means that

According to the principle of monetary neutrality,a decrease in the money supply will not change

Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Monetary neutrality means that a change in the money supply

In the long run,money demand and money supply determine

If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent,what is the real interest rate?

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

Which of the following is correct?

When the money market is drawn with the value of money on the vertical axis,a decrease in the money supply leads people to

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.If the relevant money-supply curve is the one labeled MS2,then

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

Last year,Jane spent all of her income to purchase 200 units of corn at $5 per unit.This year,she spent all of her income to purchase 180 units of corn at $6 per unit.

The value of money falls as the price level

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-2.Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.If the relevant money-supply curve is the one labeled MS₂,then