Econ Chapter 16

If an economy produces 2,000 units of output with a price level of $2 and the money supply (M) is $1,000, velocity is:

4.

Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 4 percent. At the end of the year, you have earned a real rate of interest of:

6 percent.

Price indexes:

All of these statements are true.

If an economy produces 2,500 units of output with a money supply of $500 and a velocity of 10, we know the price level must be:

$2.

Unexpected high inflation redistributes wealth from:

those who save to those who borrow.

The quantity theory of money states explicitly that the:

value of money is determined by the overall quantity of money in existence.

The number of transactions a typical dollar is used in during a given period is called the:

velocity of money.

According to the quantity theory of money, a decrease in prices would be due to:

a decrease in the money supply.

Suppose the nominal interest rate is 4 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 5 percent. At the end of the year, you have earned:

a nominal increase in your savings of $40.

A measure of the average price level for GDP is called the:

aggregate price level.

The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:

an increase in P.

According to the quantity theory of money, an increase in the money supply leads to:

an increase in prices, as there are more dollar bills spent on the same number of goods and services.

When real rates of interest are negative, borrowers:

benefit, because the value of their debt declines.

In the long run, an increase in the aggregate price level:

doesn't change real output.

If the value of your savings is increasing over time, it must be true that the inflation rate:

is lower than the nominal interest rate.

According to the quantity theory of money, increasing the money supply:

leads to inflation.

The nominal interest rate is:

not adjusted for inflation.

If the Fed doubled the money supply in one day, the amount of goods and services traded would:

not change.

When real rates of interest are positive, it is better to be a:

saver than a borrower, because the value of savings and debts are increasing.

The quantity theory of money relies on which variable to remain constant?

Velocity of money