Economics 32-33

The real quantity of money is 1) equal to M/P; 2) the money supply adjusted for inflation; 3) higher in the long run when the Fed buys government securities. 3 only 1 only 2 only 1, 2, and 3 1 and 2 only

1 and 2 only

In the 1970s, politicians were willing increase unemployment in an effort to bring inflation down. True False

True

If there is too If there is too much deflation: borrowers will be helped. aggregate demand will increase. lenders will be harmed. people will switch from money to real assets. the nominal interest rate will be constrained by the zero interest rate bound.

the nominal interest rate will be constrained by the zero interest rate bound.

In the long run, changes in the quantity of money affect which of the following? 1) real aggregate output; 2) interest rates; 3) the aggregate price level 1 only 2 only 1 and 2 only 1, 2, and 3 3 only

3 only

Governments sometimes print money in order to finance budget deficits. When they do, they impose a "deflation tax." True False

False

Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium. Describe the effects in the short run and in the long run, on the following: the aggregate price level The aggregate price level falls in the short run (by more than 25%); the aggregate price level falls in the long run (by more than 25%). The aggregate price level rises in the short run (by more than 25%); the aggregate price level rises in the long run (by more than 25%). The aggregate price level rises in the short run (by less than 25%); the aggregate price level rises by 25% in the long run.

The aggregate price level rises in the short run (by less than 25%); the aggregate price level rises by 25% in the long run.

Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium. Describe the effects in the short run and in the long run, on the following: the interest rate There is no change in either the short run or long run The interest rate falls in the short run; the interest rate rises back to its original level in the long run. The interest rate rises in the short run; the interest rate falls back to its original level in the long run.

The interest rate falls in the short run; the interest rate rises back to its original level in the long run.

An inflation tax is higher during periods of low inflation paid directly as a percentage of the sale price on purchases imposed by governments to offset price increases the result of a decrease in the value of money held by the public generally levied by states rather than the federal government

The result of a decrease in the value of money held by the public

In the long run, changes in the money supply affect the aggregate price level but not real GDP or the interest rate. True False

True

Classical economists point out that an increase in the money supply leads to an equal proportional rise in the price level there is a possibility of a liquidity trap monetary policy can increase potential GDP government spending can affect aggregate demand there is a trade-off between unemployment and inflation

an increase in the money supply leads to an equal proportional rise in the price level

Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium. Describe the effects in the short run and in the long run, on the following: the real value of the money supply (its purchasing power for goods and service) The real value of the money supply decreases in the short run; the real value of the money supply increase in the long run. The real value of the money supply decreases in the short run; the real value of the money supply does not change (relative to its original value) in the long run. The real value of the money supply increases in the short run; the real value of the money supply does not change (relative to its original value) in the long run.

The real value of the money supply increases in the short run; the real value of the money supply does not change (relative to its original value) in the long run.

Monetary neutrality means that, in the long run, changes in the money supply have no real effect on the economy can not happen have no effect on the economy change real interest rates increase real GDP

have no real effect on the economy

An increase in the money supply will lead to which of the following in the short run? decreased investment spending increased aggregate demand decreased consumer spending higher interest rates lower real GDP

increased aggregate demand

A graph of percentage increase in the money supply and average annual increases in the price level for various countries provides evidence that monetary policy is ineffective. money neutrality holds only in wealthy countries. changes in the two variables are exactly equal. the money supply and aggregate price level are unrelated. money is neutral in the long run.

money is neutral in the long run

The classical model of the price level is most applicable in depressions the United States periods of high inflation periods of low inflation recessions

periods of high inflation

Revenue generated by the government's right to print money is known as hyperinflation monetary funds seignorage fiat money an inflation tax

seignorage

A 10% decrease in the money supply will change the aggregate price level in the long run by 10% 20% less than 10% zero more than 20%

10%

In the classical model of the price level only the long-run aggregate supply curve is vertical only the short-run aggregate supply curve is vertical both the short-run and long-run aggregate supply curves are vertical both the short-run aggregate demand and supply curves are vertical both the long-run aggregate demand and supply curves are vertical

both the short-run and long-run aggregate supply curves are vertical

Assume the central bank increases the quantity of money by 25%, even though the economy is initially in both short-run and long-run macroeconomic equilibrium. Describe the effects in the short run and in the long run, on the following: aggregate output the aggregate output stays the same in both the short and long-run the aggregate output falls in the short - run; aggregate output rises to potential output in the long run the aggregate output rises in the short-run; aggregate output falls back to potential output in the long run

the aggregate output rises in the short-run; aggregate output falls back to potential output in the long run