ECON 211 - Aplia - Practice III

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money. True or False

True

When the price level falls the quantity of A. consumption goods demanded and the quantity of net exports demanded both rise. B. consumption goods demanded and the quantity of net exports demanded both fall. C. consumption goods demanded falls, while the quantity of net exports demand rises. D. consumption goods demanded rises, while the quantity of net exports demanded falls.

A. consumption goods demanded and the quantity of net exports demanded both rise.

In the short run, open-market sales A. decrease the price level and real GDP. B. increase the price level and real GDP. C. decreases the price level and increases real GDP. D. increases the price level and decreases real GDP.

A. decrease the price level and real GDP.

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an A. excess supply of money which causes the price level to rise. B. excess demand for money which causes the price level to fall. C. excess supply of money which causes the price level to fall. D. excess demand for money which causes the price level to rise.

A. excess supply of money which causes the price level to rise.

The most important reason for the slope of the aggregate-demand curve is that as the price level A. increases, interest rates increase, and investment decreases. B. increases, interest rates decrease, and investment increases. C. decreases, interest rates decrease, and investment decreases. D. decreases, interest rates increase, and investment increases.

A. increases, interest rates increase, and investment decreases.

If the unemployment rate is below the natural rate, then A. inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right. B. inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift left. C. inflation is less than expected. As inflation expectations are revised the short-run Phillips curve will shift right. D. inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift left.

A. inflation is greater than expected. As inflation expectations are revised the short-run Phillips curve will shift right.

According to the principle of monetary neutrality, a decrease in the money supply will not change A. unemployment. B. nominal GDP. C. the price level. D. All of the above are correct.

A. unemployment

According to liquidity preference theory, the money-supply curve is A. vertical. B. downward sloping. C. horizontal. D. upward sloping.

A. vertical.

Other things the same, continued increases in the money supply lead to A. continued increases in the price level and real GDP. B. continued increases in the price level but not continued increases in real GDP. C. continued increases in real GDP but not continued increases in the price level. D. a one-time permanent increase in both prices and real GDP.

B. continued increases in the price level but not continued increases in real GDP.

Other things the same, if prices fell when firms and workers were expecting them to rise, then A. employment and production would rise. B. employment and production would fall. C. employment would rise and production would fall. D. employment would fall and production would rise.

B. employment and production would fall

Monetary policy and fiscal policy influence A. output and prices in the short run and the long run. B. output in the short run only. C. output and prices in the short run only. D. output in the short run and the long run.

B. output in the short run only.

Changes in the interest rate A. shift aggregate demand if they are caused by changes in the price level, but not if they are caused by changes in fiscal or monetary policy. B. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level. C. shift aggregate demand whether they are caused by changes in the price level or by changes in fiscal or monetary policy. D. do not shift aggregate demand.

B. shift aggregate demand if they are caused by fiscal or monetary policy, but not if they are caused by changes in the price level.

According to the long-run Phillips curve, in the long run monetary policy influences A. the unemployment rate but not the inflation rate. B. the inflation rate but not the unemployment rate. C. both the inflation rate and the unemployment rate. D. neither the unemployment rate nor the inflation rate.

B. the inflation rate but not the unemployment rate.

If the Federal Reserve increases the growth rate of the money supply, in the long run A. inflation is higher and the unemployment rate is lower. B. inflation is unchanged while the unemployment rate is lower. C. inflation is higher while the unemployment rate is unchanged. D. None of the above is correct.

C. inflation is higher while the unemployment rate is unchanged.

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely A. shift aggregate demand right by a larger amount than the increase in government expenditures. B. shift aggregate demand right by the same amount as the increase in government expenditures. C. shift aggregate demand right by a smaller amount than the increase in government expenditures. D. Any of the above outcomes are possible.

D. Any of the above outcomes are possible.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift A. aggregate supply to the left. B. aggregate supply to the right. C. aggregate demand to the left. D. aggregate demand to the right.

D. aggregate demand to the right.

Other things the same, if the long-run aggregate supply curve shifts right, prices A. increase and output decreases. B. and output both increase. C. and output both decrease. D. decrease and output increases.

D. decrease and output increases. (draw both LRAS & AD)

As the Consumer Price Index increases, the value of money A. rises, so people hold less money to buy the goods and services they want. B. falls, so people hold less money to buy the goods and services they want. C. rises, so people hold more money to buy the goods and services they want. D. falls, so people hold more money to buy the goods and services they want.

D. falls, so people hold more money to buy the goods and services they want.

People will want to hold more money if the price level A. or if the interest rate decreases. B. decreases or if the interest rate increases. C. or if the interest rate increases. D. increases or if the interest rate decreases.

D. increases or if the interest rate decreases.

According to the classical dichotomy, which of the following increases when the money supply increases? A. the real interest rate B. the real wage C. real GDP D. the nominal wage

D. the nominal wage

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level. True or False

False