Module 39 Practice Quiz

Most major nations have central banks, insulated from political pressure, that typically try to keep inflation in what annual range?

2-3%

An increase in the money supply leads to a(n) __________ in the interest rate in the short run, and a(n) ______ in the interest rate in the long run.

decrease; no change

When economists say that money is neutral in the long run, they mean that changes in the money supply:

do not affect real GDP or its components.

n the long run, changes in the money supply:

do not affect the interest rate.

In the long run, an increase in the money supply:

does not change real GDP.

In the long run, the equilibrium interest rate:

is not affected by changes in the money supply

In the long run, the interest rate is determined in the __________ market.

loanable funds

In the short run, an increase in the money supply:

lowers the interest rate, but it does not affect the interest rate in the long run.

In the long run, the only effect of an increase in the money supply is to ________ the aggregate price level by a(n) ________.

raise; equal percentage

Suppose that the economy is operating at potential output and there is an increase in the money supply. Which statement best describes the adjustment process that will follow?

Aggregate output will rise above potential output, nominal wages will rise, and the SRAS will shift leftward.

The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is ______.

upward sloping; vertical

Which of the following actions by a central bank would an economist consider a productive action?

Changing the money supply to influence interest rates in the short run.

When studying the long-run relationship between money and inflation, which statement is NOT true?

The concept of "monetary neutrality" was disproved.

Contractionary monetary policy leads to ______ in the price level in the short run, and ______ in the price level in the long run.

a decrease; a decrease

Expansionary monetary policy causes _______ in interest rates in the short run and ______ in interest rates in the long run.

a fall; no change

If actual output is equal to potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will:

increase.

A(n) ________ in the money supply lowers the interest rate in the short run, but in the long run, ________ prices lead to a ________ money demand, raising the interest rate to its original level.

increase; higher; greater

In the long run, a 50% increase in the money supply:

increases prices by 50%.

In the long run, a monetary expansion

increases the aggregate price level but has no effect on real GDP.

The short-run effect of an increase in the money supply is that the aggregate price level:

increases, and real output also increases.

An increase in the money supply __________ aggregate demand, and the eventual rise in prices leads to a(n) _________ in short-run aggregate supply.

increases; decrease