Question 1

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

Accepted Answer

A) 4 percent 
B) 6 percent 
C) 8 percent 
D) 10 percent 
A) 4 percent 
B) 6 percent 
C) 8 percent 
D) 10 percent

Question 2

Which of the following would decrease the value of money?

Accepted Answer

A) Money demand exceeds money supply 
B) ​The Federal Reserve sells government bonds 
C) The velocity of money decreases 
D) ​The price level decreases 
A) Money demand exceeds money supply 
B) ​The Federal Reserve sells government bonds 
C) The velocity of money decreases 
D) ​The price level decreases

Question 3

Figure 30-1  
-Refer to Figure 30-1.If the money supply is MS2 and the value of money is 2,then

Accepted Answer

A) the quantity of money demanded is greater than the quantity supplied;the price level will rise. 
B) the quantity of money demanded is greater than the quantity supplied;the price level will fall. 
C) the quantity of money supplied is greater than the quantity demanded;the price level will rise. 
D) the quantity of money supplied is greater than the quantity demanded;the price level will fall. 
A) the quantity of money demanded is greater than the quantity supplied;the price level will rise. 
B) the quantity of money demanded is greater than the quantity supplied;the price level will fall. 
C) the quantity of money supplied is greater than the quantity demanded;the price level will rise. 
D) the quantity of money supplied is greater than the quantity demanded;the price level will fall.

Question 4

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Accepted Answer

A) a real interest rate of 3 percent and an inflation rate of 2 percent. 
B) a real interest rate of 7 percent and an inflation rate of 1 percent. 
C) a real interest rate of 5 percent and an inflation rate of 1 percent. 
D) a real interest rate of 6 percent and an inflation rate of 1 percent. 
A) a real interest rate of 3 percent and an inflation rate of 2 percent. 
B) a real interest rate of 7 percent and an inflation rate of 1 percent. 
C) a real interest rate of 5 percent and an inflation rate of 1 percent. 
D) a real interest rate of 6 percent and an inflation rate of 1 percent.

Question 5

The price level is a

Accepted Answer

A) relative variable. 
B) dichotomous variable 
C) real variable. 
D) nominal variable. 
A) relative variable. 
B) dichotomous variable 
C) real variable. 
D) nominal variable.

Question 6

If P denotes the price of goods and services measured in terms of money,then

Accepted Answer

A) 1/P represents the value of money measured in terms of goods and services. 
B) P can be regarded as the "overall price level." 
C) an increase in the value of money is associated with a decrease in P. 
D) All of the above are correct. 
A) 1/P represents the value of money measured in terms of goods and services. 
B) P can be regarded as the "overall price level." 
C) an increase in the value of money is associated with a decrease in P. 
D) All of the above are correct.

Question 7

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

Accepted Answer

A) shifts right,causing the price level to rise. 
B) shifts right,causing the price level to fall. 
C) shifts left,causing the price level to rise. 
D) shifts left,causing the price level to fall. 
A) shifts right,causing the price level to rise. 
B) shifts right,causing the price level to fall. 
C) shifts left,causing the price level to rise. 
D) shifts left,causing the price level to fall.

Question 8

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80.In 2011 tuition was $12,000 and the price index was 320.Which of the following is correct?

Accepted Answer

A) Nominal and real tuition were both higher in 1975. 
B) Nominal and real tuition were both higher in 2011. 
C) Nominal tuition was higher in 1975,real tuition was higher in 2011. 
D) Nominal tuition was higher in 2011,real tuition was higher in 1975. 
A) Nominal and real tuition were both higher in 1975. 
B) Nominal and real tuition were both higher in 2011. 
C) Nominal tuition was higher in 1975,real tuition was higher in 2011. 
D) Nominal tuition was higher in 2011,real tuition was higher in 1975.

Question 9

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's 
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's

Question 10

Katarina puts money into an account.One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A) The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D) The nominal interest rate was 10 percent and the inflation rate was 4 percent. 
A) The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D) The nominal interest rate was 10 percent and the inflation rate was 4 percent.

Question 11

According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

Accepted Answer

A) nominal and real GDP would rise by 5 percent. 
B) nominal GDP would rise by 5 percent;real GDP would be unchanged. 
C) nominal GDP would be unchanged;real GDP would rise by 5 percent. 
D) neither nominal GDP nor real GDP would change. 
A) nominal and real GDP would rise by 5 percent. 
B) nominal GDP would rise by 5 percent;real GDP would be unchanged. 
C) nominal GDP would be unchanged;real GDP would rise by 5 percent. 
D) neither nominal GDP nor real GDP would change.

Question 12

You put money in the bank.The increase in the dollar value of your savings

Accepted Answer

A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable,but the change in the number of goods you can buy with your savings is a real variable. 
D) is a real variable,but the change in the number of goods you buy with your savings is a nominal variable. 
A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable,but the change in the number of goods you can buy with your savings is a real variable. 
D) is a real variable,but the change in the number of goods you buy with your savings is a nominal variable.

Question 13

Shawn puts money into an account.One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Accepted Answer

A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) The nominal interest rate was 6 percent and the inflation rate was 1 percent. 
A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) The nominal interest rate was 6 percent and the inflation rate was 1 percent.

Question 14

In which case is velocity the highest?

Accepted Answer

A) the price level equals 4,the money supply equals 5,000,and output equals 20,000. 
B) the price level equals 4,the money supply equals 20,000 and output equals 5,000. 
C) the price level equals 2,the money supply equals 5,000,and output equals 20,000. 
D) the price level equals 2,the money supply equals 20,000 and output equals 5,000. 
A) the price level equals 4,the money supply equals 5,000,and output equals 20,000. 
B) the price level equals 4,the money supply equals 20,000 and output equals 5,000. 
C) the price level equals 2,the money supply equals 5,000,and output equals 20,000. 
D) the price level equals 2,the money supply equals 20,000 and output equals 5,000.

Question 15

Your nominal wage increases from $12 per hour to $13 per hour.At the same time,the price level increases from 140 to 147.As a result,

Accepted Answer

A) The number of dollars you receive increases and the purchasing power of the dollars you receive increases. 
B) The number of dollars you receive increases and the purchasing power of the dollars you receive decreases. 
C) The number of dollars you receive decreases and the purchasing power of the dollars you receive increases. 
D) The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases. 
A) The number of dollars you receive increases and the purchasing power of the dollars you receive increases. 
B) The number of dollars you receive increases and the purchasing power of the dollars you receive decreases. 
C) The number of dollars you receive decreases and the purchasing power of the dollars you receive increases. 
D) The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases.

Question 16

Suppose every good costs $8 per unit and Molly holds $120.What is the real value of the money she holds?

Accepted Answer

A) $120.If the price of goods rises,to maintain the real value of her money holdings she needs to hold more dollars. 
B) $120.If the price of goods rises,to maintain the real value of her money holdings she needs to hold fewer dollars. 
C) 15 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold more dollars. 
D) 15 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold fewer dollars. 
A) $120.If the price of goods rises,to maintain the real value of her money holdings she needs to hold more dollars. 
B) $120.If the price of goods rises,to maintain the real value of her money holdings she needs to hold fewer dollars. 
C) 15 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold more dollars. 
D) 15 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 17

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply

Accepted Answer

A) increases the price level and increases the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and decreases the value of money. 
A) increases the price level and increases the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and decreases the value of money.

Question 18

Based on the quantity equation,if M = 8,000,P = 3,and Y = 12,000,then V =

Accepted Answer

A) 0.33. 
B) 2.0. 
C) 4.5. 
D) 0.5. 
A) 0.33. 
B) 2.0. 
C) 4.5. 
D) 0.5.

Question 19

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Accepted Answer

A) both higher inflation and higher nominal interest rates. 
B) a higher inflation rate,but not higher nominal interest rates. 
C) a higher nominal interest rate,but not higher inflation. 
D) neither a higher inflation rate nor a higher nominal interest rate. 
A) both higher inflation and higher nominal interest rates. 
B) a higher inflation rate,but not higher nominal interest rates. 
C) a higher nominal interest rate,but not higher inflation. 
D) neither a higher inflation rate nor a higher nominal interest rate.

Question 20

The real interest rate is 4 percent and the nominal interest rate is 6 percent.Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A) deflation;2 percent 
B) deflation;10 percent 
C) inflation;2 percent 
D) inflation;10 percent 
A) deflation;2 percent 
B) deflation;10 percent 
C) inflation;2 percent 
D) inflation;10 percent

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

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

Which of the following would decrease the value of money?

Figure 30-1 -Refer to Figure 30-1.If the money supply is MS2 and the value of money is 2,then

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

The price level is a

If P denotes the price of goods and services measured in terms of money,then

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

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80.In 2011 tuition was $12,000 and the price index was 320.Which of the following is correct?

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

Katarina puts money into an account.One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

You put money in the bank.The increase in the dollar value of your savings

Shawn puts money into an account.One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

In which case is velocity the highest?

Your nominal wage increases from $12 per hour to $13 per hour.At the same time,the price level increases from 140 to 147.As a result,

Suppose every good costs $8 per unit and Molly holds $120.What is the real value of the money she holds?

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply

Based on the quantity equation,if M = 8,000,P = 3,and Y = 12,000,then V =

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

The real interest rate is 4 percent and the nominal interest rate is 6 percent.Is there inflation or deflation? What is the inflation or deflation rate?

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 30-1 -Refer to Figure 30-1.If the money supply is MS₂ and the value of money is 2,then