Question 1

In the monetarist version of the AD-AS framework,starting from long-run equilibrium,an increase in the money supply produces

Accepted Answer

A)   no change in Real GDP in the short run or the long run.
B)   a rise in Real GDP in both the short run and the long run.
C)   a rise in Real GDP in the short run,but not in the long run.
D)   a rise in Real GDP in the long run,but not in the short run.E) A) and B)
F) All of the above

Question 2

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Accepted Answer

A) True 
 B)False

Question 3

"The money supply multiplied by velocity must equal GDP" is a statement of the

Accepted Answer

A)   simple quantity theory of money.
B)   equation of exchange.
C)   modern quantity theory of money.
D)   all of the aboveE) B) and C)
F) A) and B)

Question 4

Exhibit 14-1 
-Refer to Exhibit 14-1.A continued increase in the price of oil,combined with Fed attempts to respond to these oil shocks by increasing aggregate demand,is likely to take the economy along which of the following paths?

Accepted Answer

A)   A-E-B-H-C
B)   A-E-G-I-C
C)   A-D-B-E-A
D)   A-D-B-H-C
E)   A-E-B-I-CF) A) and B)
G) A) and C)

Question 5

When Milton Friedman said that inflation is always and everywhere a monetary phenomenon,he was referring to

Accepted Answer

A)   one-shot inflation
B)   supply-induced inflation
C)   continued inflation
D)   hyperinflation (high rates of inflation) 
E)   all kinds of inflationF) A) and B)
G) C) and E)

Question 6

Exhibit 14-1 
-Refer to Exhibit 14-1.A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

Accepted Answer

A)   A-E-B-H-C
B)   A-D-B-I-C
C)   A-D-F-H-C
D)   A-D-B-H-C
E)   A-E-B-I-CF) A) and B)
G) None of the above

Question 7

Which of the following statements is false?

Accepted Answer

A)   Monetarists believe that the velocity of money is highly stable.
B)   Monetarists believe that the velocity of money is predictable.
C)   Monetarists believe that the economy will settle into long-run equilibrium at less than full employment output.
D)   Monetarists believe that output can be at less than full employment output in the short run.E) None of the above
F) All of the above

Question 8

The simple quantity theory of money predicts that the larger the percentage change in the money supply,the larger the percentage change in Real GDP.

Accepted Answer

A) True 
 B)False

Question 9

The simple quantity theory of money predicts that if

Accepted Answer

A)   the money supply rises by $200,then GDP falls by $200.
B)   GDP rises by $400,then the money supply rises by $400.
C)   the money supply rises by 10 percent,then the price level rises by 10 percent.
D)   the money supply falls by $300,then GDP rises by $300.E) A) and B)
F) C) and D)

Question 10

According to Milton Friedman,continued inflation is always and everywhere

Accepted Answer

A)   a supply-side phenomenon.
B)   caused by continued decreases in aggregate supply.
C)   caused by continued increases in the budget deficit.
D)   a monetary phenomenon.
E)   none of the aboveF) C) and D)
G) B) and D)

Question 11

The aggregate supply curve in the short run is vertical in __________ version of the AD-AS framework.

Accepted Answer

A)   the simple quantity theory of money
B)   the monetarist
C)   both the simple quantity theory of money and the monetarist
D)   neither the simple quantity theory of money nor the monetaristE) A) and B)
F) All of the above

Question 12

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Accepted Answer

A) True 
 B)False

Question 13

If Real GDP is $8,000,the money supply is $4,000,and the price level is 3,then velocity is

Accepted Answer

A)   2.00.
B)   3.33.
C)   6.00.
D)   7.50.
E)   none of the aboveF) D) and E)
G) B) and D)

Question 14

Can a one-time increase in the supply of money cause one-shot inflation?

Accepted Answer

A)   Yes,because it shifts the aggregate demand curve rightward.
B)   No,because it cannot shift the aggregate demand curve rightward.
C)   Yes,because it shifts the aggregate demand curve leftward.
D)   Yes,because it shifts the aggregate supply curve rightward.E) All of the above
F) B) and C)

Question 15

The California gold rush resulted in

Accepted Answer

A)   an increase in the amount of money in circulation and higher prices throughout the country.
B)   no change in the amount of money in circulation and higher prices throughout the country.
C)   an increase in the amount of money in circulation and higher prices only in California.
D)   no change in the amount of money in circulation and higher prices only in California.E) A) and D)
F) B) and C)

Question 16

Based upon the equation of exchange,which of the following (ceteris paribus) is most likely to bring about inflation?

Accepted Answer

A)   An increase in the money supply.
B)   A decrease in velocity.
C)   An increase in Real GDP.
D)   a and b
E)   a and cF) All of the above
G) A) and B)

Question 17

The assumption made about Real GDP in the simple quantity theory of money produces a ____________________ curve in the AD-AS version of the theory.

Accepted Answer

A)   horizontal AD
B)   vertical AD
C)   horizontal AS
D)   vertical ASE) B) and C)
F) All of the above

Question 18

Exhibit 14-1 2.Assuming no other changes,in the long run the economy is likely to settle at point A)  A. B)  B. C)  C. D)  D. E)  E." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 14-1.Starting from point A,a one-shot,demand-side-induced inflation raises the price level in the economy to P2.Assuming no other changes,in the long run the economy is likely to settle at point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.
E)   E.F) B) and D)
G) None of the above

Question 19

Suppose the economy starts off producing Natural Real GDP.Next,aggregate supply rises,ceteris paribus.As a result,the price level falls in the short run.In the long run,when the economy has moved back to producing Natural Real GDP,the price level will be

Accepted Answer

A)   higher than it was in short-run equilibrium.
B)   lower than it was in short-run equilibrium but higher than it was originally (before aggregate supply rose) .
C)   lower than it was originally (before aggregate supply rose) .
D)   equal to what it was originally (before aggregate supply rose) .E) A) and D)
F) All of the above

Question 20

Describe the difference between the simple quantity theory of money and the equation of exchange.

Accepted Answer

The equation of exchange is an identity ...

Exam 14: Money and the Economy

Exhibit 14-1 -Refer to Exhibit 14-1.A continued increase in the price of oil,combined with Fed attempts to respond to these oil shocks by increasing aggregate demand,is likely to take the economy along which of the following paths?

Correct AnswerverifiedShow Answer

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Correct AnswerverifiedShow Answer

In the monetarist version of the AD-AS framework,starting from long-run equilibrium,an increase in the money supply produces

Correct AnswerverifiedShow Answer

"The money supply multiplied by velocity must equal GDP" is a statement of the

Correct AnswerverifiedShow Answer

The simple quantity theory of money predicts that the larger the percentage change in the money supply,the larger the percentage change in Real GDP.

Correct AnswerverifiedShow Answer

Can a one-time increase in the supply of money cause one-shot inflation?

Correct AnswerverifiedShow Answer

When Milton Friedman said that inflation is always and everywhere a monetary phenomenon,he was referring to

Correct AnswerverifiedShow Answer

Suppose the economy starts off producing Natural Real GDP.Next,aggregate supply rises,ceteris paribus.As a result,the price level falls in the short run.In the long run,when the economy has moved back to producing Natural Real GDP,the price level will be

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

The simple quantity theory of money predicts that if

Correct AnswerverifiedShow Answer

If Real GDP is $8,000,the money supply is $4,000,and the price level is 3,then velocity is

Correct AnswerverifiedShow Answer

Based upon the equation of exchange,which of the following (ceteris paribus) is most likely to bring about inflation?

Correct AnswerverifiedShow Answer

The assumption made about Real GDP in the simple quantity theory of money produces a ____________________ curve in the AD-AS version of the theory.

Correct AnswerverifiedShow Answer

Exhibit 14-1 -Refer to Exhibit 14-1.Starting from point A,a one-shot,demand-side-induced inflation raises the price level in the economy to P2.Assuming no other changes,in the long run the economy is likely to settle at point

Correct AnswerverifiedShow Answer

The California gold rush resulted in

Correct AnswerverifiedShow Answer

The aggregate supply curve in the short run is vertical in __________ version of the AD-AS framework.

Correct AnswerverifiedShow Answer

Describe the difference between the simple quantity theory of money and the equation of exchange.

Correct AnswerverifiedThe equation of exchange is an identity ...View AnswerShow Answer

According to Milton Friedman,continued inflation is always and everywhere

Correct AnswerverifiedShow Answer

Exhibit 14-1 -Refer to Exhibit 14-1.A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

Correct AnswerverifiedShow Answer

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Correct AnswerverifiedShow Answer

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Exhibit 14-1 -Refer to Exhibit 14-1.Starting from point A,a one-shot,demand-side-induced inflation raises the price level in the economy to P₂.Assuming no other changes,in the long run the economy is likely to settle at point

Correct Answer
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The equation of exchange is an identity ...
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