Question 1

Which statement best describes the impact of open-market purchases by the Bank of Canada?

Accepted Answer

A)   The money supply and the value of money increase.
B)   The money supply increases,which makes the value of money decrease.
C)   The money supply and the value of money decrease.
D)   The money supply decreases,which makes the value of money increase.E) A) and B)
F) A) and C)

Question 2

Define each of the symbols and explain the meaning of M × V = P × Y.

Accepted Answer

M is the quantity of money,V is the velo...

Question 3

When a graph of the money market is drawn with the value of money on the vertical axis,what will happen if the value of money is below the equilibrium level?

Accepted Answer

A)   The price level will rise.
B)   The value of money will rise.
C)   Money demand will shift left.
D)   Money demand will shift right.E) None of the above
F) A) and B)

Question 4

When prices are falling,what term do economists use?

Accepted Answer

A)   disinflation
B)   deflation
C)   contraction
D)   inflationE) A) and B)
F) All of the above

Question 5

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis,draw a money demand curve and explain its shape.Do the same for the money supply curve.

Accepted Answer

See Figure 11.1 in the textbook.The mone...

Question 6

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 7

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?

Accepted Answer

A)   The price level and the quantity of money demanded increases.
B)   The price level increases,but the quantity of money demanded decreases.
C)   The price level decreases,but the quantity of money demanded increases.
D)   The price level and the quantity of money demanded decreases.E) B) and C)
F) A) and D)

Question 8

What does the classical theory of inflation try to explain?

Accepted Answer

A)   changes in relative prices in the economy determined by factors other than inflation
B)   the effect of inflation on economic growth and political stability
C)   the short-run determinants of the price level and the inflation rate
D)   the long-run determinants of the price level and the inflation rateE) All of the above
F) None of the above

Question 9

Which of the following best defines menu costs?

Accepted Answer

A)   resources used by people to maintain lower money holdings when inflation is high
B)   costs associated with resource misallocation.
C)   the distortion in incentives created by inflation when taxes do not adjust for inflation
D)   the cost of more frequent price changes induced by higher inflationE) B) and C)
F) A) and B)

Question 10

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation,real interest rates,and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 11

Under which condition is wealth distributed from debtors to creditors?

Accepted Answer

A)   when inflation is high,but expected
B)   when inflation is low,but expected
C)   when inflation is unexpectedly high
D)   when inflation is unexpectedly lowE) B) and D)
F) A) and B)

Question 12

How is velocity computed?

Accepted Answer

A)   (P × Y)  / M
B)   (P × M)  / Y
C)   (Y × V)  / P
D)   (Y × M)  / VE) All of the above
F) C) and D)

Question 13

Which statement best characterizes the inflation tax?

Accepted Answer

A)   The inflation tax transfers wealth from the government to households.
B)   The inflation tax is the increase in income taxes due to lack of indexation.
C)   The inflation tax is a tax on everyone who holds money.
D)   The inflation tax is illegal.E) C) and D)
F) A) and D)

Question 14

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?

Accepted Answer

Typically,the government in countries th...

Question 15

In recent years,Bolivia,Russia,and Turkey have had much higher nominal interest rates than Canada,while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in...

Question 16

In the long run,when money is neutral,which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price levelE) C) and D)
F) A) and D)

Question 17

If P represents the price of goods and services measured in money,then 1 / P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 18

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

Accepted Answer

A)   nominal
B)   real
C)   stock
D)   flowE) None of the above
F) B) and D)

Question 19

Which statement best describes the evolution of inflation in Canada?

Accepted Answer

A)   It has been relatively constant over the past 70 years.
B)   The inflation rate was constant at 7 percent annually for most of the twentieth century.
C)   During the 1990s,prices rose at an average rate of 2 percent per year.
D)   During the 1970s,there was deflation.E) C) and D)
F) B) and D)

Question 20

Figure 11-1 
-Refer to the Figure 11-1.If the current money supply is located at MS1 and the value of money is 2,what is the excess demand or supply?

Accepted Answer

A)   0
B)   1
C)   2
D)   3E) All of the above
F) A) and B)

Exam 11: Money Growth and Inflation

In recent years,Bolivia,Russia,and Turkey have had much higher nominal interest rates than Canada,while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

Define each of the symbols and explain the meaning of M × V = P × Y.

Correct AnswerverifiedM is the quantity of money,V is the velo...View AnswerShow Answer

Which statement best describes the impact of open-market purchases by the Bank of Canada?

Correct AnswerverifiedShow Answer

Which statement best characterizes the inflation tax?

Correct AnswerverifiedShow Answer

When prices are falling,what term do economists use?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedTypically,the government in countries th...View AnswerShow Answer

If P represents the price of goods and services measured in money,then 1 / P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation,real interest rates,and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

When a graph of the money market is drawn with the value of money on the vertical axis,what will happen if the value of money is below the equilibrium level?

Correct AnswerverifiedShow Answer

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

Which of the following best defines menu costs?

Correct AnswerverifiedShow Answer

Which statement best describes the evolution of inflation in Canada?

Correct AnswerverifiedShow Answer

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis,draw a money demand curve and explain its shape.Do the same for the money supply curve.

Correct AnswerverifiedSee Figure 11.1 in the textbook.The mone...View AnswerShow Answer

How is velocity computed?

Correct AnswerverifiedShow Answer

Figure 11-1 -Refer to the Figure 11-1.If the current money supply is located at MS1 and the value of money is 2,what is the excess demand or supply?

Correct AnswerverifiedShow Answer

What does the classical theory of inflation try to explain?

Correct AnswerverifiedShow Answer

Under which condition is wealth distributed from debtors to creditors?

Correct AnswerverifiedShow Answer

In the long run,when money is neutral,which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

Correct Answer
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The Fisher effect says that increases in...
View Answer

Correct Answer
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M is the quantity of money,V is the velo...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Typically,the government in countries th...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Inflation and nominal interest...
View Answer

Correct Answer
verified

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
See Figure 11.1 in the textbook.The mone...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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