30) According to the equation of exchange, if the quantity of money is $20 billion, velocity
3, and real GDP is $6 billion, then the price level is
A) 10.
B) 40.
C) 1.6.
D) 1.1.
E) 2.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
31) Suppose the quantity of money is $1,000, the velocity of circulation is 6, and real GDP
is $4,000. Then the price level is
A) 2.5.
B) 2.0.
C) 1.5.
D) 1.1.
E) 6.0.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
32) Suppose nominal GDP is $2,000 a year and the quantity of money is $400. Then the
velocity of circulation equals
A) 5.
B) 1/5.
C) 10.
D) 2.
E) 8.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
51
33) If the price level is 2, real GDP is $50 billion, and the quantity of money is $4 billion,
then velocity is
A) 4.
B) 10.
C) 25.
D) 12.5.
E) 8.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
34) According to the equation of exchange, if the quantity of money is $4 billion and the
velocity of circulation is 3, nominal GDP is
A) $12 billion.
B) $7 billion.
C) $1.3 billion.
D) $0.75 billion.
E) $8 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
35) If velocity is equal to 6, and the quantity of money is $50 billion, according to the
equation of exchange, nominal GDP is equal to
A) $18 billion.
B) $8.3 billion.
C) $300 billion.
D) $56 billion.
E) $150 billion.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
52
36) Nominal GDP is $9.6 million dollars, real GDP is $9 million, and velocity is 1.2. The
quantity of money is ________ million.
A) $8
B) $11.52
C) $7.5
D) $10.8
E) $12
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
37) If velocity does not change and the quantity of money grows at the same rate as does
real GDP, then in the long run
A) the inlation rate equals the growth rate of the quantity of money.
B) the nominal interest rate is less than the real interest rate.
C) the real interest rate is less than the nominal interest rate.
D) the inlation rate equals zero.
E) the nominal interest rate equals zero.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
38) If velocity does not change and if real GDP and the quantity of money grow at the same
rate, then the price level
A) rises and the inlation rate is negative.
B) falls and the inlation rate is negative.
C) does not change and the inlation rate is zero.
D) rises and the inlation rate is positive.
E) falls and the inlation rate is positive.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
53
39) If real GDP and the velocity of circulation do not change and the quantity of money
grows by 3 percent, then in the long the inlation rate is
A) 3 percent.
B) 0 percent.
C) -3 percent.
D) larger than 3 percent.
E) More information is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
40) If real GDP grows by 3 percent, the velocity of circulation does not change, and the
quantity of money grows by 3 percent, then in the long run the inlation rate is
A) 3 percent.
B) 0 percent.
C) -3 percent.
D) -6 percent.
E) 6 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
41) The velocity of circulation grows at 1 percent and real GDP grows at 3 percent. If the
quantity of money grows at 2 percent, the inlation rate is
A) 2 percent.
B) 4 percent.
C) 8 percent.
D) zero.
E) 10 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
54
42) The velocity of circulation grows at 1 percent and real GDP grows at 3 percent. If the
quantity of money grows at 4 percent, the inlation rate is
A) 2 percent.
B) 4 percent.
C) 8 percent.
D) zero.
E) 10 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
43) If real GDP grows by 3 percent, the velocity of circulation grows by 4 percent, and the
quantity of money grows by 3 percent, then in the long run the inlation rate is
A) 4 percent.
B) 0 percent.
C) -4 percent.
D) 10 percent.
E) 7 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
44) If real GDP grows by 3 percent, the velocity of circulation grows by -4 percent, and the
quantity of money grows by 3 percent, then in the long run the inlation rate is
A) 4 percent.
B) -4 percent.
C) -1 percent.
D) 10 percent.
E) 1 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Revised
AACSB: Analytical thinking
55
45) If real GDP grows by 3 percent, the velocity of circulation does not change, and the
quantity of money grows by 5 percent, then in the long run the inlation rate is
A) 3 percent.
B) -5 percent.
C) -2 percent.
D) 8 percent.
E) 2 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
46) If real GDP grows at 4 percent, the quantity of money grows at 6 percent, and velocity
does not change, then in the long run the inlation rate is
A) 4 percent.
B) 6 percent.
C) 10 percent.
D) 2 percent.
E) 1.5 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
47) Suppose that real GDP grows by 3 percent a year, the quantity of money grows 6
percent a year, and velocity grows by 1 percent. In the long run, the inlation rate equals
A) 9 percent.
B) 4 percent.
C) 5 percent.
D) 12 percent.
E) 10 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
56
48) Suppose that real GDP grows by 3 percent a year, the quantity of money grows 5
percent a year, and velocity does not change. In the long run, the inlation rate equals
A) 8 percent.
B) 3 percent.
C) 5 percent.
D) 2 percent.
E) 10 percent.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
49) If real GDP grows at 3 percent a year, the quantity of money grows at 5 percent a year,
and the velocity of circulation is constant, then the price level must be
A) increasing at 8 percent a year.
B) decreasing at 8 percent a year.
C) increasing at 2 percent a year.
D) decreasing at 2 percent a year.
E) increasing at 15 percent a year.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
50) If the quantity of money starts to grow more rapidly than real GDP and velocity does
not change, the result is
A) more rapid growth in potential GDP.
B) the inlation rate rises.
C) an increase in investment.
D) an eventual slowing in the growth rate of the quantity of money.
E) slower growth in the price level.
Skill: Level 3: Using models
Section: Checkpoint 12.2
Status: Old
AACSB: Analytical thinking
57
51) If the inlation rate increases,
A) the velocity of circulation increases.
B) potential GDP increases.
C) real GDP growth increases.
D) the nominal interest rate falls.
E) the real interest rate rises.
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
52) Hyperinlation is deined as periods of
A) negative price changes.
B) low inlation.
C) inlation over 50 percent per month.
D) inlation under 10 percent per year.
E) inlation over 25 percent per year
Skill: Level 1: Deinition
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
53) Inlation at a rate that exceeds 50 percent per month is called
A) extreme inlation.
B) super inlation.
C) hyperinlation.
D) megainlation.
E) skylation.
Skill: Level 1: Deinition
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
58
54) Hyperinlation
A) occurs in the United States during each business cycle.
B) occurs only in theory, never in reality.
C) has never occurred in the United States.
D) happens in all countries at some time during their business cycle.
E) is a period of time when inlation exceeds 20 percent per year.
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
55) In the early 1920s, Germany experienced hyperinlation because Germany’s
A) economy was growing very rapidly.
B) population was growing very rapidly.
C) quantity of money was growing very rapidly.
D) real GDP was growing faster than nominal GDP.
E) demand for money skyrocketed.
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
56) During the early 1920s, Germany experienced
A) negative inlation as a result of high money creation.
B) hyperinlation as a result of low money creation.
C) moderate price changes as a result of a recession.
D) hyperinlation as a result of high money creation.
E) hyperinlation as a result of rapidly increasing demand for money.
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
59
57) In 2008 and 2009, the quantity theory of money did a ________ job of predicting year-to-
year changes in the inlation rate because ________.
A) poor; velocity of circulation plunged
B) poor; the Fed changed the growth rate of the quantity of money too quickly
C) good; real GDP remained stable
D) good; interest rates behaved predictably
E) poor; the price level and the velocity of circulation did not change
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
58) With a large and growing deicit, the Fed may face pressure from the government to
A) decrease the inlation tax.
B) keep interest rates low, but the Fed risks inlation by doing so.
C) decrease the quantity of money to keep the value of money high.
D) increase the velocity of circulation.
E) increase the quantity of money to prevent inlation.
Skill: Level 2: Using deinitions
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
59) In the long run, the price level adjusts
A) so that the real interest rate equals the nominal interest rate.
B) so that the inlation rate equals zero.
C) to achieve money market equilibrium.
D) so that the inlation rate equals the growth rate of real GDP.
E) so that the inlation rate is moderate.
Skill: Level 1: Deinition
Section: Checkpoint 12.2
Status: Old
AACSB: Relective thinking
60