Question 1

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Accepted Answer

A) True 
 B)False

Question 2

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 3

When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following best describes the effects of an increase in money supply?

Accepted Answer

A)  The equilibrium value and equilibrium quantity of money both increase.
B)  The equilibrium value and equilibrium quantity of money both decrease.
C)  The equilibrium value increases, while the equilibrium quantity of money decreases.
D)  The equilibrium value decreases, while the equilibrium quantity of money increases.E) B) and D)
F) B) and C)

Question 4

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings.Income tax is collected on nominal rather than real interest rates.So an increase in inflation will increase nominal interest rates and taxes.The increase in taxes in turn lowers the real return on savings and so discourages savings.

Question 5

Which of the following does an increase in the money supply growth rate increase?

Accepted Answer

A)  inflation, nominal interest rates, and real interest rates
B)  inflation and nominal interest rates, but it does not change real interest rates
C)  inflation and real interest rates, but it does not change nominal interest rates
D)  nominal and real interest rates, but it does not change inflationE) None of the above
F) B) and C)

Question 6

When a graph of the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal.This is due to adjustments in which of the following?

Accepted Answer

A)  the value of money
B)  real interest rates
C)  nominal interest rates
D)  the money supplyE) A) and C)
F) B) and C)

Question 7

When the money market is depicted in a graph with the value of money on the vertical axis,as the price level increases,what happens to the value of money?

Accepted Answer

A)  It increases, so the quantity of money demanded increases.
B)  It increases, so the quantity of money demanded decreases.
C)  It decreases, so the quantity of money demanded decreases.
D)  It decreases, so the quantity of money demanded increases.E) None of the above
F) A) and D)

Question 8

The money supply in Freedonia is $200 billion.Nominal GDP is $800 billion and real GDP is $400 billion.The central bank of Freedonia has instituted a policy of zero inflation.Assuming that velocity is stable,if real GDP grows by 10 percent this year,how will the central bank of Freedonia change the money supply this year?

Accepted Answer

A)  It will not change the money supply at all.
B)  It will reduce the money supply by 10 percent.
C)  It will increase the money supply by 10 percent.
D)  It will increase the money supply by 2.5 percent.E) A) and D)
F) All of the above

Question 9

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

Accepted Answer

A)  the real interest rate
B)  the real GDP
C)  the real wage
D)  the price levelE) C) and D)
F) A) and B)

Question 10

In recent years,Bolivia,Russia,and Turkey have had much higher nominal interest rates than Canada,while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in the inflation rate lead to one-to-one increases in nominal interest rates.The quantity theory says that in the long run,inflation increases one-to-one with money supply growth.It follows that differences in nominal interest rates may be due to differences in inflation rates.There may be some difference in real interest rates,but if we suppose these are small,then we predict that Bolivia,Russia,and Turkey have higher inflation than Canada and that Japan has lower inflation than Canada.

Question 11

Refer to the following:
a.The central bank of the Republic of Moldova needs to determine by how much to increase the money supply next year,if they estimate an increase in the overall economic activity (real GDP)of 2.5 percent and have a target inflation rate of 4 percent.The velocity of money has been observed to be constant over the past many years.If you were a consultant to the government,what would your advice be? 
b.Next year,the National Bank of Moldova wishes to reduce inflation to 2 percent,and estimates an increase in real GDP by 1.5 percent.What should be the change in the money supply?

Accepted Answer

a) Using the approximate formula DM/M + DV/V = DP/P + DY/Y with the velocity term equal to zero,we calculate DM/M = 0.04 + 0.025 = 0.065,or an increase in the required money supply of 6.5 percent.
b) DM/M = 0.02 + 0.015 = 0.035,or 3.5 percent.

Question 12

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 13

For a given real interest rate,which of the following best describes the effects of an increase in inflation?

Accepted Answer

A)  Inflation makes the real interest rate decrease, which encourages savings.
B)  Inflation makes the real interest rate decrease, which discourages savings.
C)  Inflation makes the real interest rate increase, which encourages savings.
D)  Inflation makes the real interest rate increase, which discourages savings.E) All of the above
F) C) and D)

Question 14

What does the shoeleather cost of inflation refer to?

Accepted Answer

A)  the fall in real income associated with inflation
B)  the time spent searching for low prices when inflation rises
C)  the waste of resources used to maintain lower money holdings
D)  the increased cost to the government of printing more moneyE) B) and D)
F) C) and D)

Question 15

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.the Bank of Canada increases the money supply.
b.people decide to demand less money at each value of money.

Accepted Answer

a.The Bank of Canada increases the money...

Question 16

If the Bank of Canada increases the money supply,the equilibrium value of money decreases and the equilibrium price level must increase.

Accepted Answer

A) True 
 B)False

Question 17

The interest rates usually published in newspapers such as the Financial Post are what kind of economic variables?

Accepted Answer

A)  classical
B)  dichotomous
C)  nominal
D)  realE) All of the above
F) A) and D)

Question 18

A rising price level eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 19

The money supply in Freedonia is $100 billion.Nominal GDP is $800 billion,and real GDP is $200 billion.What is the price level in Freedonia?

Accepted Answer

A)  1
B)  2
C)  4
D)  8E) A) and B)
F) A) and C)

Question 20

Use a money supply and demand diagram to answer the following problem: "The introduction of automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Accepted Answer

The introduction of automated teller mac...

Exam 11: Money Growth and Inflation

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Correct Answer
verified

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following best describes the effects of an increase in money supply?

Correct Answer
verified

Explain how inflation affects savings.

Correct Answer
verified
Inflation discourages savings.Income tax is collected on nominal rather than real interest rates.So an increase in inflation will increase nominal interest rates and taxes.The increase in taxes in turn lowers the real return on savings and so discourages savings.

Which of the following does an increase in the money supply growth rate increase?

Correct Answer
verified

When a graph of the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal.This is due to adjustments in which of the following?

Correct Answer
verified

When the money market is depicted in a graph with the value of money on the vertical axis,as the price level increases,what happens to the value of money?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

In recent years,Bolivia,Russia,and Turkey have had much higher nominal interest rates than Canada,while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Correct Answer
verified
a) Using the approximate formula DM/M + DV/V = DP/P + DY/Y with the velocity term equal to zero,we calculate DM/M = 0.04 + 0.025 = 0.065,or an increase in the required money supply of 6.5 percent. b) DM/M = 0.02 + 0.015 = 0.035,or 3.5 percent.

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

For a given real interest rate,which of the following best describes the effects of an increase in inflation?

Correct Answer
verified

What does the shoeleather cost of inflation refer to?

Correct Answer
verified

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a.the Bank of Canada increases the money supply. b.people decide to demand less money at each value of money.

Correct Answer
verified
a.The Bank of Canada increases the money...
View Answer

If the Bank of Canada increases the money supply,the equilibrium value of money decreases and the equilibrium price level must increase.

Correct Answer
verified

The interest rates usually published in newspapers such as the Financial Post are what kind of economic variables?

Correct Answer
verified

A rising price level eliminates an excess supply of money.

Correct Answer
verified

The money supply in Freedonia is $100 billion.Nominal GDP is $800 billion,and real GDP is $200 billion.What is the price level in Freedonia?

Correct Answer
verified

Use a money supply and demand diagram to answer the following problem: "The introduction of automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Correct Answer
verified
The introduction of automated teller mac...
View Answer

Exam 11: Money Growth and Inflation

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Correct AnswerverifiedShow Answer

Inflation distorts relative prices.What does this mean,and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following best describes the effects of an increase in money supply?

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings.Income tax is collected on nominal rather than real interest rates.So an increase in inflation will increase nominal interest rates and taxes.The increase in taxes in turn lowers the real return on savings and so discourages savings.

Which of the following does an increase in the money supply growth rate increase?

Correct AnswerverifiedShow Answer

When a graph of the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal.This is due to adjustments in which of the following?

Correct AnswerverifiedShow Answer

When the money market is depicted in a graph with the value of money on the vertical axis,as the price level increases,what happens to the value of money?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In recent years,Bolivia,Russia,and Turkey have had much higher nominal interest rates than Canada,while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Correct Answerverifieda) Using the approximate formula DM/M + DV/V = DP/P + DY/Y with the velocity term equal to zero,we calculate DM/M = 0.04 + 0.025 = 0.065,or an increase in the required money supply of 6.5 percent. b) DM/M = 0.02 + 0.015 = 0.035,or 3.5 percent.

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

For a given real interest rate,which of the following best describes the effects of an increase in inflation?

Correct AnswerverifiedShow Answer

What does the shoeleather cost of inflation refer to?

Correct AnswerverifiedShow Answer

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a.the Bank of Canada increases the money supply. b.people decide to demand less money at each value of money.

Correct Answerverifieda.The Bank of Canada increases the money...View AnswerShow Answer

If the Bank of Canada increases the money supply,the equilibrium value of money decreases and the equilibrium price level must increase.

Correct AnswerverifiedShow Answer

The interest rates usually published in newspapers such as the Financial Post are what kind of economic variables?

Correct AnswerverifiedShow Answer

A rising price level eliminates an excess supply of money.

Correct AnswerverifiedShow Answer

The money supply in Freedonia is $100 billion.Nominal GDP is $800 billion,and real GDP is $200 billion.What is the price level in Freedonia?

Correct AnswerverifiedShow Answer

Use a money supply and demand diagram to answer the following problem: "The introduction of automated teller machines was equivalent to an increase in money supply." Discuss this assertion.

Correct AnswerverifiedThe introduction of automated teller mac...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

Correct Answer
verified

Correct Answer
verified
Inflation discourages savings.Income tax is collected on nominal rather than real interest rates.So an increase in inflation will increase nominal interest rates and taxes.The increase in taxes in turn lowers the real return on savings and so discourages savings.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a) Using the approximate formula DM/M + DV/V = DP/P + DY/Y with the velocity term equal to zero,we calculate DM/M = 0.04 + 0.025 = 0.065,or an increase in the required money supply of 6.5 percent. b) DM/M = 0.02 + 0.015 = 0.035,or 3.5 percent.

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.The Bank of Canada increases the money...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The introduction of automated teller mac...
View Answer