Macro Econ Chapter 12 Practice Quiz

Printing money to finance government expenditures a. causes the value of money to rise. b. imposes a tax on everyone who holds money. c. is the principle method by which the U.S. government finances its expenditures. d. None of the above is correct.

b

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in a. real output only. b. nominal output only. c. the price level only. d. Both the price level and nominal output.

d

Most economists believe that monetary neutrality provides a. a good description of both the long run and the short run. b. a good description of neither the long run nor the short run. c. a good description of the short run, but not the long run. d. a good description of the long run, but not the short run.

d

The classical theory of inflation a. is also known as the quantity theory of money. b. was developed by some of the earliest economic thinkers. c. is used by most modern economists to explain the long-run determinants of the inflation rate. d. All of the above are correct.

d

The money supply in Tazland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Tazland? a. the price level and velocity are both 8 b. the price level is 8 and velocity is 4 c. the price level and velocity are both 4 d. the price level is 4 and velocity is 8

d

The price of a Honda Accord a. and the price of a Honda Accord divided by the price of a Honda Civic are both real variables. b. and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables. c. is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable. d. is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

d

Wealth is redistributed from debtors to creditors when inflation is a. high, but expected. b. low, but expected. c. unexpectedly high. d. unexpectedly low.

d

You buy a stock and its price rises less than the price level. Before taxes you made a. a nominal and real gain, and you pay taxes on the nominal gain. b. a nominal gain and a real loss, and you don't have to pay taxes since you gained less than the change in the price level. c. a nominal and a real gain, and you pay taxes on the real gain. d. a nominal gain and a real loss, and you pay taxes on the nominal gain.

d

Deflation a. increases the ability to pay debts and raises the value of money. b. increases the ability to pay debts and lowers the value of money. c. reduces the ability to pay debts and raises the value of money. d. reduces the ability to pay debts and lowers the value of money.

c

Money demand refers to a. the total quantity of financial assets that people want to hold. b. how much income people want to make per year. c. how much wealth people want to hold in liquid form. d. how much currency the Federal Reserve decides to print.

c

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then a. both the nominal and the real interest rate fall. b. neither the nominal nor the real interest rate fall. c. the nominal interest rate falls, but the real interest rate does not. d. the real interest rate falls, but the nominal interest rate does not.

c

According to the classical dichotomy, when the money supply doubles, which of the following also double? a. the price level and nominal wages b. the price level, but not the nominal wage c. the nominal wage, but not the price level d. neither the nominal wage nor the price level

a

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent, what is the real interest rate? a. 7 percent b. 5 percent c. 3 percent d. 3/5 percent

a

The Fisher effect says that a. the nominal interest rate adjusts one for one with the inflation rate. b. the growth rate of the money supply determines the inflation rate. c. real variables are heavily influenced by the monetary system. d. All of the above are correct.

a

As the price level decreases, the value of money a. increases, so people want to hold more of it. b. increases, so people want to hold less of it. c. decreases, so people want to hold more of it. d. decreases, so people want to hold less of it.

b

Based on the quantity equation, if M = 100, V = 3, and Y = 200, then P = a. 1. b. 1.5. c. 2. d. None of the above is correct.

b

Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change in the price of a specific commodity.

b

The classical dichotomy refers to the idea that the supply of money a. is irrelevant for understanding the determinants of nominal and real variables. b. determines nominal variables, but not real variables. c. determines real variables, but not nominal variables. d. is a determinant of both real and nominal variables.

b

The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate? a. 3 percent. b. 4 percent. c. 8 percent. d. 12 percent.

b

The price level rises from 120 to 150. What was the inflation rate? a. 30% b. 25% c. 20% d. None of the above is correct.

b