Macro Final Chapter 17

According to the classical dichotomy, which of the following is not influenced by monetary factors?

B. Real GDP

Nominal GDP measures

B. The dollar value of the economy's output of final goods and services

If velocity and out were nearly constant,

B. The inflation rate would be about the same as the money supply growth rate.

The price level rises from 120 to 150. What was the inflation rate?

B.25%

The classical theory of inflation

D. All of the above are correct

The price level is a

D. Nominal variable

According to classical dichotomy, which of the following increases when the money supply increases?

D. None of the above increases

The supply curve of money is vertical because the quantity of money supplied increases

D. Only if the central bank increases the money supply

Refer to Figure 30-1 If the money supply is MS2 and the value of money is 2, there is excess

D. Supply equal to the distance between A and B

The velocity of money is

D. The average number of times per year a dollar is spent

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

False

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

False

According to the assumptions of quantity theory, if the money supply increases 5% then

B. Nominal GDP would rise by 5%, real GDP would be unchanged

Suppose that over some period the money supply tripled, velocity fell by half, and real GDP doubled. According to the quantity equation the price level is now

D. .75 times its old value

Most economists believe that monetary neutrality provides

D. A good description of the long run, but not the short run

Suppose that the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

D. All of the above are correct

Most economists believe the principle monetary neutrality is

D. Mostly relevant to the long run

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

D. Movement to the right along the money demand curve

Refer to Figure 30-1. If the money supply is MS1 and the value of money is 2,

D. The quantity of money supplied is greater than the quantity of money demanded

A rising price level eliminates an excess supply of money.

True

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoe leather costs.

True

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

True

As inflation rises, people will tend to

B. Go to the bank less often. This is known as shoe leather costs.

As the price level decreases, the value of money

B. Increases, so people want to hold less of it

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

B. Excess demand for money, so the price level will fall

Velocity is computed as

A. (P X Y)/M

Last year, Tealandia produced 50,000 bags of green tea. This was Tealandia's only production. Each bag sold at 4 units each of Tealandia's currency-the Leaf. Tealandia's money supply was 10,000. What was the velocity of money in Tealandia?

A. 20

Refer to Figure 30-1 When the money supply curve shifts from MS1 to MS2

A. The equilibrium value of money decreases

According to the classical dichotomy, when the money supply double which of the following double?

A. The price level and nominal GDP

Real GDP measures

A. The total quantity of final goods and services produced.

Refer to Figure 30-1 If the current money supply is located at MS1

A. There is no excess supply or excess demand if the value of money is 2

You put money in an account and earn a real interest rate of 4 percent. Inflation is 2 percent and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

B. 2.8 percent

The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?

B. 4 percent

According to the quantity equation, if P=12 Y=6 M=8, then V=

B. 9

Interest rates for savings accounts listed on your bank's website

B. And a price index are nominal variables

The quantity theory of money

B. Can explain both moderate inflation and hyperinflation

The classical dichotomy refers to the idea that the supply of money

B. Determines nominal variables, but not real variables

You buy stock and its price rises just as much as the price rises just as much as the price level. Before taxes you made

C. A nominal gain, but no real gain, yet you pay taxes on the nominal game.

An increase in the price level makes the value of money

C. Decrease, so people want to hold less of it

The source of hyperinflation is primarily

C. Increased money supply growth

Given a nominal interest rate of 8 percent, in which case below would you earn the highest after-tax real interest rate?

C. Inflation is 3 percent; the tax rate is 40 percent

When the money is neutral, which of the following increases when the money supply growth rate increases?

C. Nominal interest rates

Refer to Figure 30-1 When the money supply curve shifts from MS1 to MS2, the graph shows that

C. The equilibrium price level increases

Arnold puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods.

C. The nominal interest rate was 5 percent and the inflation rate was -1 percent.

The money supply curve shifts to the left when the Fed buys government bonds.

False