Money Growth and Inflation
TRUE/FALSE
1. The inflation rate is measured as the percentage change in a price index.
ANS: T DIF: 1 REF: 30-0
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation
KEY: MSC: Definitional
2. U.S. prices rose at an average annual rate of about 4 percent over the last 70 years.
ANS: T DIF: 1 REF: 30-0
NAT: Analytic LOC: The role of money TOP: Inflation
MSC: Analytical
3. The United States has never had deflation.
ANS: F DIF: 1 REF: 30-0
NAT: Analytic LOC: The role of money TOP: Deflation
MSC: Definitional
4. In the 1990s, U.S. prices rose at about the same rate as in the 1970s.
ANS: F DIF: 1 REF: 30-0
NAT: Analytic LOC: The role of money TOP: U.S. inflation
MSC: Definitional
5. As the price level falls, the value of money falls.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Value | Money
MSC: Interpretive
6. The price level is determined by the supply of, and demand for, money.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Definitional
7. If the quantity of money supplied is greater than the quantity demanded, then prices should fall.
ANS: F DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Analytical
8. Dollar prices and relative prices are both nominal variables.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money
TOP: Nominal variables | Real variables MSC: Definitional
9. The quantity equation is M x V = P x Y.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Quantity equation
MSC: Definitional
10. According to the Fisher effect, if inflation rises then the nominal interest rate rises.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Fisher effect
MSC: Definitional
11. An increase in money demand would create a surplus of money at the original value of money.
ANS: F DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Applicative
2014
12. Hyperinflations are associated with governments printing money to finance expenditures.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: Unemployment and inflation TOP: Hyperinflation
MSC: Definitional
13. For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level. ANS: T DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Velocity of money
MSC: Analytical
14. The quantity theory of money can explain hyperinflations but not moderate i nflation.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Hyperinflation
MSC: Interpretive北极光俄语
15. If P represents the price of goods and services measured in money, then 1/P is the value of money measured in
terms of goods and services.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money | Value
MSC: Interpretive
16. When the value of money is on the vertical axis, an increase in the price level shifts money demand to the
right.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money demand
MSC: Applicative
17. The money supply curve shifts to the left when the Fed buys government bonds.
ANS: F DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money supply
MSC: Analytical
18. When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.声波测井
ANS: F DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money supply
MSC: Definitional
19. If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Analytical
20. A rising price level eliminates an excess supply of money.
ANS: T DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Analytical
21. A rising value of money eliminates an excess supply of money.
ANS: F DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Analytical
22. Nominal GDP measures output of final goods and services in physical terms.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Nominal variables
MSC: Interpretive
2016 Chapter 30 /Money Growth and Inflation
23. The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Classical dichotomy
MSC: Definitional
24. The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.
ANS: T DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Monetary neutrality
MSC: Interpretive
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25. The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the
money supply would lead to less than a 50 percent increase in the price level.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Quantity theory
MSC: Applicative
26. The source of all four classic hyperinflations was high rates of money growth.
ANS: T DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Hyperinflation
MSC: Definitional
27. In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate,
but no change in the nominal interest rate.
ANS: F DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Quantity theory
MSC: Definitional
28. Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this
are called shoeleather costs.
ANS: T DIF: 1 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Shoeleather costs of inflation MSC: Definitional
29. Shoeleather costs and menu costs are both costs of anticipated inflation.
ANS: T DIF: 1 REF: 30-2
NAT: Analytic LOC: Unemployment and inflation
TOP: Shoeleather costs of inflation | Menu costs o f inflation MSC: Definitional
30. For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.
ANS: T DIF: 2 REF: 30-2
NAT: Analytic LOC: Unemployment and inflation TOP:
Inflation | Taxes | Real interest rate MSC: Analytical
31. Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed. ANS: F DIF: 2 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Inflation | Real interest rate MSC: Interpretive
32. Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.
ANS: F DIF: 2 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Inflation | Real interest rate MSC: Interpretive
33. Suppose the nominal interest rate is 10 percent; the tax rate on interest income is 28 percent, and the inflation
rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.
ANS: F DIF: 2 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Taxes | Real interest rate
MSC: Interpretive
34. Suppose the nominal interest rate is 5 percent; the tax rate on interest income is 30 percent, and the after-tax
real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.
ANS: T DIF: 2 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Taxes | Real interest rate MSC: Interpretive
35. If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors. ANS: F DIF: 1 REF: 30-2
NAT: Analytic LOC: The role of money
TOP: Wealth redistribution | Inflation MSC: Applicative
36. If inflation is higher than expected, then borrowers make nominal interest payments that are less than they
expected.
ANS: F DIF: 2 REF: 30-2
NAT: Analytic LOC: Unemployment and inflation TOP: Menu costs of inflation
MSC: Applicative
37. Inflation is costly only if it is unanticipated.
ANS: F DIF: 1 REF: 30-2
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation costs
MSC: Interpretive
38. Even though monetary policy is neutral in the short run, it may have profound real effects in the long run. ANS: F DIF: 1 REF: 30-3
NAT: Analytic LOC: The role of money TOP: Monetary neutrality
MSC: Interpretiveb1
SHORT ANSWER
1. Why did farmers in the late 1800s dislike deflation?
ANS:
Most had large nominal debts. The decrease in the price level meant that they received less for what they produced and so made it harder to pay off the debts whose real value rose as prices fell.
DIF: 2 REF: 30-1 NAT: Analytic
LOC: The role of money TOP: Deflation MSC: Analytical
2. Explain the adjustment process in the money market that creates a change in the price level when the money
supply increases.
ANS:dif
When the money supply increases, there is an excess supply of money at the original value of money. After the money supply increases, people have more money than they want to hold in their p
urses, wallets and checking accounts. They use this excess money to buy goods and services or lend it out to other people to buy goods and services. The increase in expenditures causes prices to rise and the value of money to fall. As the value of money falls, the quantity of money people want to hold increases so that the excess supply is eliminated. At the end of this process the money market is in equilibrium at a higher price level and a lower value of money.
请DIF: 2 REF: 30-1 NAT: Analytic
LOC: The role of money TOP: Money market
MSC: Analytical
2018 Chapter 30 /Money Growth and Inflation
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