Question 1

When prices are falling, economists say that there is

Accepted Answer

A) deflation. 
B) inflation. 
C) a contraction. 
D) an expansion

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 4

Some countries have experienced an extraordinarily high rate of inflation known as _____. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _____.

Accepted Answer

The answer of Some countries have experienced an extraordinarily high...

Question 5

Which of the following is an example of menu costs?

Accepted Answer

A) Decreased savings 
B) Advertising new prices 
C) Reduced money holdings 
D) Wrong consumption decisions

Question 6

During the 1970s, U.S. prices rose by 7.8 percent per year and real GDP increased. Holding velocity constant and using the quantity equation, we conclude that

Accepted Answer

A) money growth must have been greater than the growth of real income. 
B) money growth must have been less than the growth of real income. 
C) prices fell during the 1970s. 
D) output fell during the 1970s.

Question 7

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a.the Fed increases the money supply.
b.people decide to demand less money at each value of money.

Accepted Answer

The answer of Using separate graphs, demonstrate what happens to...

Question 8

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) inflation tax.

Question 9

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 10

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A) high, whether it is expected or not. 
B) low, whether it is expected or not. 
C) unexpectedly high. 
D) unexpectedly low.

Question 11

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A) the inflation rate and the nominal interest rate by the same number of percentage points. 
B) nominal interest rates but by less than the percentage point increase in the inflation rate. 
C) the inflation rate but not the nominal interest. 
D) neither the inflation rate nor the nominal interest rate.

Question 12

The theory that most economists rely on to explain inflation is called the __________.

Accepted Answer

The answer of The theory that most economists rely on...

Question 13

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

The answer of Suppose the Fed sells government bonds. Use...

Question 14

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

Accepted Answer

A) True 
 B)False

Question 15

The costs a business incurs to change its prices are called ___________.

Accepted Answer

The answer of The costs a business incurs to change...

Question 16

The nominal interest rate is 7 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A) 9 percent 
B) 0.50 percent 
C) -5 percent 
D) 5 percent

Question 17

The shoeleather cost of inflation refers to the

Accepted Answer

A) redistributional effects of unexpected inflation. 
B) time spent searching for low prices when inflation rises. 
C) waste of resources used to maintain lower money holdings. 
D) increased cost to the government of printing more money.

Question 18

Figure 30-3
On the following graph, MS represents the money supply and MD represents money demand. 
-Refer to Figure 30-3. At the end of the first year, the relevant money-supply curve was the one labeled MS2. At the end of the second year, the relevant money-supply curve was the one labeled MS1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for the second year?

Accepted Answer

A) 43 percent 
B) 30 percent 
C) -30 percent 
D) 14.3 percent

Question 19

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Accepted Answer

The answer of Mitch makes payments on a car loan....

Question 20

Inflation can be measured by the

Accepted Answer

A) change in the consumer price index. 
B) change in money demand. 
C) percentage change in the consumer price index. 
D) change in the money supply.

Exam 30: Money Growth and Inflation

When prices are falling, economists say that there is

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

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Some countries have experienced an extraordinarily high rate of inflation known as _. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _.

Which of the following is an example of menu costs?

During the 1970s, U.S. prices rose by 7.8 percent per year and real GDP increased. Holding velocity constant and using the quantity equation, we conclude that

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a.the Fed increases the money supply. b.people decide to demand less money at each value of money.

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Wealth is redistributed from creditors to debtors when inflation is

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

The theory that most economists rely on to explain inflation is called the __________.

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

The costs a business incurs to change its prices are called ___________.

The nominal interest rate is 7 percent and the inflation rate is 2 percent. What is the real interest rate?

The shoeleather cost of inflation refers to the

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Inflation can be measured by the