Eco 231-302 Exam 3 part 3

According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to: A) 10. B) 20. C) 50. D) 100.

A) 10

(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after 1 year. In which year did lenders receive exactly the amount of real interest they expected? A) 2000 B) 2002 C) 2003 D) 2004

A) 2000

. _____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate. A) Deflation; disinflation B) Disinflation; deflation C) Stagflation; disinflation D) Deflation; stagflation

A) Deflation; disinflation

According to the quantity theory, which of the following could cause the price level to decrease? A) The population spends less money. B) The population spends money faster. C) Nominal GDP rises. D) The government spends more.

A) The population spends less money.

Which measure of the average price level most closely corresponds to a student's daily economic activities? A) consumer price index B) producer price index C) GDP deflator D) household price index

A) consumer price index

In the quantity theory of money, growth of _____ is the cause of inflation. A) the money supply B) velocity C) real GDP D) the CPI

A) the money supply

Even moderate inflation typically: A) increases real prices. B) increases the amount of taxes that people pay over time. C) decreases average household consumption. D) decreases the number of long-term contracts signed.

B) increases the amount of taxes that people pay over time.

The quantity theory of money is a theory of: A) money growth in the United States. B) inflation. C) economic growth. D) the growth of tax burdens.

B) inflation

In the long run, the quantity theory of money says that the growth rate of the money supply will be approximately equal to the: A) velocity of money. B) inflation rate. C) price level. D) growth rate of real GDP.

B) inflation rate.

If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____. A) greater; lenders to borrowers B) less; lenders to borrowers C) greater; borrowers to lenders D) less; borrowers to lenders

B) less; lenders to borrowers

In the equation Mv = PYR, P represents: A) average productivity. B) the average price level. C) inflation. D) corporate profits.

B) the average price level.

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with: A) the theory of price confusion. B) the quantity theory of money. C) the theory of money illusion. D) the Fisher effect.

B) the quantity theory of money.

What two components of the quantity theory of money are assumed to be stable over time? A) the velocity of money and the price level B) real GDP and price level C) real GDP and the velocity of money D) the money supply and the velocity of money

C) real GDP and the velocity of money

. If the price of gasoline increased 100% during a period of time when inflation was 100%, then the relative real price of gasoline would: A) increase. B) decrease. C) remain constant. D) increase or decrease, depending on whether income had changed or not.

C) remain constant

If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017? A) 5% inflation B) 7% inflation C) 7% deflation D) 5% deflation

D) 5% deflation

. From 2002 to 2007, Zimbabwe experienced average annual inflation of: A) 0%. B) 3%. C) 20%. D) 736%.

D) 736%.

Volatile hyperinflation causes financial intermediation to: A) become more efficient. B) favor long-term lending. C) favor first-time borrowers. D) break down

D) break down

. If the growth rate of the money supply decreases from 10% to 5%, which of the following is a prediction of the quantity theory of money? A) disinflation B) deflation C) hyperinflation D) money illusion

A) disinflation

The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of: A) the government monetizing its debt. B) large rainfall shocks. C) amplification mechanisms. D) a lack of foreign aid

A) the government monetizing its debt.

If you had to predict the U.S. inflation rate for next year and decided that a good way to make that prediction would be to simply use the average inflation rate over the past 10 years, what would be your prediction for U.S. inflation next year? A) 1.1% B) 2.4% C) 4.0% D) 5.2%

B) 2.4%

(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience deflation? A) 2007 only B) 2009 only C) both 2007 and 2009 D) neither 2007 nor 2009

B) 2009 only

The price level at the end of 2011 minus the price level at the end of 2010 is the _____ for the year 2011. A) inflation rate B) change in the price level C) change in gross national product D) consumer price index

B) change in the price level

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP? A) $1,000 B) $10,000 C) $100,000 D) $1 million

C) $100,000

The average rate of inflation in the United States over the past 10 years has been around 2.4%. If this trend continues, prices in the United States will double in about _____ years. A) 10 B) 18 C) 29 D) 39

C) 29

The GDP deflator: A) measures the average price for a basket of goods bought by an average consumer. B) measures the average price received by producers. C) measures the average price of all final goods and services produced. D) is the price index adjusted with changes in GDP

C) measures the average price of all final goods and services produced