Question 1

The implications of the quantity theory of money are the main basis for which of the following quotes?

Accepted Answer

A)  "Inflation is always zero in the long run." 
B)  "Inflation is always and everywhere a fiscal phenomenon." 
C)  "Inflation is always and everywhere a monetary phenomenon." 
D)  "Velocity growth should be equal to 2 percent in the long run." 
E)  "Velocity is always constant." 
A)  "Inflation is always zero in the long run." 
B)  "Inflation is always and everywhere a fiscal phenomenon." 
C)  "Inflation is always and everywhere a monetary phenomenon." 
D)  "Velocity growth should be equal to 2 percent in the long run." 
E)  "Velocity is always constant."

Question 2

If the inflation rate is higher than the nominal interest rate, the real interest rate is positive.

Accepted Answer

A) True 
 B)False

Question 3

The right to seigniorage is the right to apply income taxes.

Accepted Answer

A) True 
 B)False

Question 4

If Pt is the price level in time, t, inflation is calculated as:

Accepted Answer

A)  1/Pt . 
B)    . 
C)    . 
D)    . 
E)    . 
A)  1/Pt . 
B)    . 
C)    . 
D)    . 
E)    .

Question 5

In 1979, in the face of rising competition in the fast food hamburger market, McDonald's reduced the price of its cheeseburger to $0.43. If the CPI in 1979 was 37.2 and the CPI in 2005 was 100, what is the price of a 1979 cheeseburger in 2005 dollars?

Accepted Answer

A)  $0.77 
B)  $7.36 
C)  $1.16 
D)  $0.43 
E)  $0.14 
A)  $0.77 
B)  $7.36 
C)  $1.16 
D)  $0.43 
E)  $0.14

Question 6

If the real GDP growth is 4 percent per year, the money growth rate is 6 percent, and velocity is constant, using the quantity theory, the inflation rate is ________ percent.

Accepted Answer

A)  6 
B)  4 
C)  -2 
D)  2 
E)  -4 
A)  6 
B)  4 
C)  -2 
D)  2 
E)  -4

Question 7

The monetary base consists of:

Accepted Answer

A)  reserves and currency. 
B)  M1 plus M2. 
C)  only M1. 
D)  gold reserves plus currency. 
E)  a country's holdings of foreign and domestic currencies. 
A)  reserves and currency. 
B)  M1 plus M2. 
C)  only M1. 
D)  gold reserves plus currency. 
E)  a country's holdings of foreign and domestic currencies.

Question 8

The cure for hyperinflation is:

Accepted Answer

A)  reducing money growth. 
B)  maintaining government spending. 
C)  lower taxes. 
D)  seignorage. 
E)  All of these answers are correct. 
A)  reducing money growth. 
B)  maintaining government spending. 
C)  lower taxes. 
D)  seignorage. 
E)  All of these answers are correct.

Question 9

Using the quantity theory of money, we can calculate inflation using ________, under the assumption that ________.

Accepted Answer

A)    ; velocity is constant 
B)    ; percent change in velocity always equals one 
C)    ; velocity is constant 
D)    ; velocity is variable 
E)    ; velocity is constant 
A)    ; velocity is constant 
B)    ; percent change in velocity always equals one 
C)    ; velocity is constant 
D)    ; velocity is variable 
E)    ; velocity is constant

Question 10

The quantity theory states that the nominal GDP is equal to:

Accepted Answer

A)  the real GDP. 
B)  the number of dollars in circulation. 
C)  the velocity of money. 
D)  the effective amount of money used in purchases. 
E)  velocity times real GDP. 
A)  the real GDP. 
B)  the number of dollars in circulation. 
C)  the velocity of money. 
D)  the effective amount of money used in purchases. 
E)  velocity times real GDP.

Question 11

In times of high inflation, shoe-leather costs rise.

Accepted Answer

A) True 
 B)False

Question 12

You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a:

Accepted Answer

A)  6 percent interest rate. 
B)  6 percent money supply growth. 
C)  2 percent money supply growth. 
D)  0 percent money supply growth. 
E)  2 percent interest rate. 
A)  6 percent interest rate. 
B)  6 percent money supply growth. 
C)  2 percent money supply growth. 
D)  0 percent money supply growth. 
E)  2 percent interest rate.

Question 13

The Federal Reserve believed that the productivity slowdown in the 1970s was a long-lived recession and therefore increased the supply of money.

Accepted Answer

A) True 
 B)False

Question 14

The real interest rate describes the:

Accepted Answer

A)  net return to government bonds. 
B)  rate of return adjusted for inflation. 
C)  rate of return in units of a currency. 
D)  return with an interest rate equal to zero. 
E)  rate of return in real goods. 
A)  net return to government bonds. 
B)  rate of return adjusted for inflation. 
C)  rate of return in units of a currency. 
D)  return with an interest rate equal to zero. 
E)  rate of return in real goods.

Question 15

In the quantity equation, the value PtYt is the real GDP.

Accepted Answer

A) True 
 B)False

Question 16

Compared to the nominal interest rate, the real interest rate is:

Accepted Answer

A)  negative. 
B)  always smaller. 
C)  always greater than zero. 
D)  relatively stable. 
E)  relatively volatile. 
A)  negative. 
B)  always smaller. 
C)  always greater than zero. 
D)  relatively stable. 
E)  relatively volatile.

Question 17

________ prevent(s) governments from being tempted to use seignorage excessively.

Accepted Answer

A)  Gold reserves 
B)  The power of bond markets 
C)  The government budget constraint 
D)  Future generations 
E)  Central bank independence 
A)  Gold reserves 
B)  The power of bond markets 
C)  The government budget constraint 
D)  Future generations 
E)  Central bank independence

Question 18

According to the quantity theory of money, the price level is determined by the ratio of the effective quantity of money to the volume of goods.

Accepted Answer

A) True 
 B)False

Question 19

Empirically, a large amount of evidence suggests that money neutrality ________, but changes in money supply ________.

Accepted Answer

A)  holds in the short run; do not affect nominal variables 
B)  does not hold in the long run; can have real effects in the short run 
C)  holds in the short run; can have real effects in the long run 
D)  holds in the long run; can have real effects in the short run 
E)  does not hold in the long run; have an effect on unemployment in the long run 
A)  holds in the short run; do not affect nominal variables 
B)  does not hold in the long run; can have real effects in the short run 
C)  holds in the short run; can have real effects in the long run 
D)  holds in the long run; can have real effects in the short run 
E)  does not hold in the long run; have an effect on unemployment in the long run

Question 20

If the real GDP growth is 6 percent per year, the money growth rate is 4 percent, and velocity is constant, using the quantity theory, the inflation rate is ________ percent.

Accepted Answer

A)  4 
B)  -2 
C)  2 
D)  6 
E)  -4 
A)  4 
B)  -2 
C)  2 
D)  6 
E)  -4

Exam 8: Inflation

The implications of the quantity theory of money are the main basis for which of the following quotes?

If the inflation rate is higher than the nominal interest rate, the real interest rate is positive.

The right to seigniorage is the right to apply income taxes.

If Pt is the price level in time, t, inflation is calculated as:

In 1979, in the face of rising competition in the fast food hamburger market, McDonald's reduced the price of its cheeseburger to $0.43. If the CPI in 1979 was 37.2 and the CPI in 2005 was 100, what is the price of a 1979 cheeseburger in 2005 dollars?

If the real GDP growth is 4 percent per year, the money growth rate is 6 percent, and velocity is constant, using the quantity theory, the inflation rate is ________ percent.

The monetary base consists of:

The cure for hyperinflation is:

Using the quantity theory of money, we can calculate inflation using ________, under the assumption that ________.

The quantity theory states that the nominal GDP is equal to:

In times of high inflation, shoe-leather costs rise.

You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a:

The Federal Reserve believed that the productivity slowdown in the 1970s was a long-lived recession and therefore increased the supply of money.

The real interest rate describes the:

In the quantity equation, the value PtYt is the real GDP.

Compared to the nominal interest rate, the real interest rate is:

________ prevent(s) governments from being tempted to use seignorage excessively.

According to the quantity theory of money, the price level is determined by the ratio of the effective quantity of money to the volume of goods.

Empirically, a large amount of evidence suggests that money neutrality ________, but changes in money supply ________.

If the real GDP growth is 6 percent per year, the money growth rate is 4 percent, and velocity is constant, using the quantity theory, the inflation rate is ________ percent.

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

If P_t is the price level in time, t, inflation is calculated as:

Using the quantity theory of money, we can calculate inflation using , under the assumption that .

In the quantity equation, the value P_tY_t is the real GDP.

Empirically, a large amount of evidence suggests that money neutrality , but changes in money supply .