118. Interest rates adjusted for the effects of inflation
a.
and inflation are nominal variables.
b.
and inflation are real variables.
c.
are real variables; inflation is a nominal variable.
d.
are nominal variables; inflation is a real variable.
119. You put money in the bank. The increase in the dollar value of your savings
a.
and the change in the number of goods you can buy with your savings are both nominal variables.
b.
and the change in the number of goods you can buy with your savings are both real variables.
c.
is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.
d.
is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.
120. Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent
more goods. Kelly earned a real interest rate of
a.
b.
c.
d.
121. The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant
for understanding the determinants of real variables is called the
a.
velocity concept.
b.
Fisher effect.
c.
classical dichotomy.
d.
Mankiw effect.
122. The classical dichotomy refers to the idea that the supply of money
a.
is irrelevant for understanding the determinants of nominal and real variables.
b.
determines nominal variables, but not real variables.
c.
determines real variables, but not nominal variables.
d.
is a determinant of both real and nominal variables.
123. The classical dichotomy argues that changes in the money supply
a.
affect both nominal and real variables.
b.
affect neither nominal nor real variables.
c.
affect nominal variables, but not real variables.
d.
do not affect nominal variables, but do affect real variables.
124. According to the classical dichotomy, which of the following is affected by monetary factors?
a.
nominal wages
b.
the price level
c.
nominal GDP
d.
All of the above are correct.
125. According to the classical dichotomy, which of the following increases when the money supply increases?
a.
the real interest rate
b.
real GDP
c.
the real wage
d.
the nominal wage.
126. According to the classical dichotomy, which of the following is influenced by monetary factors?
a.
real GDP
b.
unemployment
c.
nominal interest rates
d.
All of the above are correct.
127. According to the classical dichotomy, which of the following is influenced by monetary factors?
a.
nominal wages
b.
unemployment
c.
real GDP
d.
All of the above are correct.
128. According to the classical dichotomy, which of the following is influenced by monetary factors?
a.
the real wage.
b.
the real interest rate.
c.
the nominal interest rate.
d.
All of the above are correct.
129. According to the classical dichotomy, which of the following is not influenced by monetary factors?
a.
the price level
b.
real GDP
c.
nominal interest rates
d.
All of the above are correct.
130. According to the classical dichotomy, which of the following is not influenced by monetary factors?
a.
unemployment
b.
the price level
c.
nominal interest rates
d.
All of the above are correct.
131. According to the classical dichotomy, which of the following is not influenced by monetary factors?
a.
real GDP.
b.
real wages.
c.
real interest rates.
d.
All of the above are correct.
132. Over time both real GDP and the price level have trended upward. Which of these trends would the classical
dichotomy say could be explained by an upward trend in the money supply?
a.
both the upward trend in real GDP and the upward trend in the price level
b.
the upward trend in real GDP but not the upward trend in the price level
c.
the upward trend in the price level but not the upward trend in real GDP
d.
neither the upward trend in the price level nor the upward trend in real GDP
133. Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
a.
both the classical dichotomy and the quantity theory of money.
b.
the classical dichotomy, but not the quantity theory of money.
c.
the quantity theory of money, but not the classical dichotomy.
d.
neither the classical dichotomy nor the quantity theory of money.
134. According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
a.
the price level and nominal wages
b.
the price level, but not the nominal wage
c.
the nominal wage, but not the price level
d.
neither the nominal wage nor the price level
135. According to the classical dichotomy, when the money supply doubles which of the following doubles?
a.
the price level and nominal GDP
b.
the price level and real GDP
c.
only real GDP
d.
only the price level
136. According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
a.
the price level
b.
nominal wages
c.
nominal GDP
d.
All of the above are correct.
137. The principle of monetary neutrality implies that an increase in the money supply will
a.
increase real GDP and the price level.
b.
increase real GDP, but not the price level.
c.
increase the price level, but not real GDP.
d.
increase neither the price level nor real GDP.
138. According to the principle of monetary neutrality, a decrease in the money supply will not change
a.
nominal GDP.
b.
the price level.
c.
unemployment.
d.
All of the above are correct.
139. Monetary neutrality implies that an increase in the quantity of money will
a.
increase employment.
b.
increase the price level.
c.
increase the incentive to save.
d.
increase the real interest rate.
140. Most economists believe the principle of monetary neutrality is
a.
relevant to both the short and long run.
b.
irrelevant to both the short and long run.
c.
mostly relevant to the short run.
d.
mostly relevant to the long run.
141. Most economists believe that monetary neutrality provides
a.
a good description of both the long run and the short run.
b.
a good description of neither the long run nor the short run.
c.
a good description of the short run, but not the long run.
d.
a good description of the long run, but not the short run.
142. Monetary neutrality means that a change in the money supply
a.
does not change real variables. Most economists think this is a good description of the economy in the short
run and in the long run.
b.
does not change real variables. Most economists think this is a good description of the economy in the long
run but not the short run.
c.
does not change nominal variables. Most economists think this is a good description of the economy in the
short-run and the long run.
d.
does not change nominal variables. Most economists think this is a good description of the economy in the
long run but not the short run.
143. Monetary neutrality means that a change in the money supply
a.
does not change real GDP. Most economists think this is a good description of the economy in the short run
and in the long run.
b.
does not change real GDP. Most economists think this is a good description of the economy in the long run but
not the short run.
c.
does change real GDP. Most economists think this is a good description of the economy in the short-run and
the long run.
d.
does change real GDP. Most economists think this is a good description of the economy in the long run but not
the short run.
144. If monetary neutrality holds, then an increase in the money supply
a.
increases real but not nominal variables. Most economists think that monetary neutrality is a good description
of the short run.
b.
increases real but not nominal variables. Most economists think that monetary neutrality is a good description
of the long run.
c.
increases nominal but not real variables. Most economists think that monetary neutrality is a good description
of the short run.
d.
increases nominal but not real variables. Most economists think that monetary neutrality is a good description
of the long run.
145. Which of the following is correct?
a.
The classical dichotomy separates real and nominal variables.
b.
Monetary neutrality is the proposition that changes in the money supply do not change real variables.
c.
When studying long-run changes in the economy, the neutrality of money offers a good description of how the
world works.
d.
All of the above are correct.
146. The velocity of money is
a.
the rate at which the Fed puts money into the economy.
b.
the same thing as the long-term growth rate of the money supply.
c.
the money supply divided by nominal GDP.
d.
the average number of times per year a dollar is spent.
147. Velocity is computed as the
a.
price level times real GDP divided by the money supply.
b.
price level times the money supply divided by real GDP.
c.
real GDP times the money supply divided by the price level.
d.
real GDP times the money supply divided by the rate at which money changes hands.
148. If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?
a.
6.75.
b.
3.00.
c.
1.33.
d.
1.50.
149. If M = 3,000, P = 2, and Y = 6,000, what is velocity?
a.
1/4
b.
2
c.
4
d.
1
150. If M = 6,000, P = 3, and Y = 3,000, what is velocity?
a.
6
b.
1.5
c.
0.67
d.
0.167
151. Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =
a.
0.33.
b.
2.0.
c.
4.5.
d.
0.5.
152. If M = 9,000, P = 6, and Y = 1,500, what is velocity?
a.
0.167.
b.
1.
c.
4.
d.
36.
153. If M = 12,000, P = 3, and Y = 32,000, then velocity =
a.
1.125. Velocity will rise if money changes hands more frequently.
b.
1.125. Velocity will rise if money changes hands less frequently.
c.
8. Velocity will rise if money changes hands more frequently.
d.
8. Velocity will rise if money changes hands less frequently.
154. In which case is velocity the highest?
a.
the price level equals 4, the money supply equals 5,000, and output equals 20,000.
b.
the price level equals 4, the money supply equals 20,000 and output equals 5,000.
c.
the price level equals 2, the money supply equals 5,000, and output equals 20,000.
d.
the price level equals 2, the money supply equals 20,000 and output equals 5,000.
155. If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is
a.
2,000.
b.
200,000.
c.
12,500.
d.
32,000.
156. Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =
a.
1.
b.
1.5.
c.
2.
d.
4.5.
157. Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =
a.
8.
b.
0.5.
c.
2.
d.
3.
158. If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average
of 4 times per year, then according to the quantity equation, the average price level is
a.
3.33.
b.
0.83.
c.
1.20.
d.
13.33.
159. Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =
a.
$4,000.
b.
$2,250.
c.
$250.
d.
$36,000.
160. If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is
a.
$250.
b.
$25,000.
c.
$1,000.
d.
$6,250.
161. According to the quantity equation, the price level would change less than proportionately with a rise in the money
supply if there were also
a.
either a rise in output or a rise in velocity.
b.
either a rise in output or a fall in velocity.
c.
either a fall in output or a rise in velocity.
d.
either a fall in output or a fall in velocity.
162. According to the quantity equation, the price level would change less than proportionately with a rise in the money
supply if there were also
a.
either a rise in output or a rise in the rate at which money changes hands.
b.
either a rise in output or a fall in the rate at which money changes hands.
c.
either a fall in output or a rise in the rate at which money changes hands.
d.
either a fall in output or a fall in the rate at which money changes hands.
163. According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
a.
nominal and real GDP would rise by 5 percent.
b.
nominal GDP would rise by 5 percent; real GDP would be unchanged.
c.
nominal GDP would be unchanged; real GDP would rise by 5 percent.
d.
neither nominal GDP nor real GDP would change.
164. According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then
a.
both the price level and real GDP would rise by 5 percent.
b.
the price level would rise by 5 percent and real GDP would be unchanged.
c.
the price level would be unchanged and real GDP would rise by 5 percent.
d.
both the price level and real GDP would be unchanged.
165. Velocity is
a.
Y/(M x P) and increases if dollars are exchanged less frequently.
b.
Y/(M x P) and increases if dollars are exchanged more frequently.
c.
(P x Y)/M and increases if dollars are exchanged less frequently.
d.
(P x Y)/M and increases if dollars are exchanged more frequently.
166. If P = 4 and Y = 200, then which of the following pairs of values are possible?
a.
M = 800, V = 16
b.
M = 150, V = 3
c.
M = 400, V = 2
d.
M = 200, V = 2
167. If P = 2 and Y = 1000, then which of the following pairs of values are possible?
a.
M = $500, V = 4.
b.
M = $250, V = 8.
c.
M = $1,000, V = 2.
d.
All of the above are correct.
168. The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are
the price level and velocity in Muckland?
a.
The price level and velocity are both 8.
b.
The price level is 2 and velocity is 8.
c.
The price level and velocity are both 4.
d.
The price level is 4 and velocity is 8.
169. The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?
a.
the price level and velocity.
b.
the price level but not velocity.
c.
velocity but not the price level.
d.
neither the price level nor velocity.
170. If Y and V are constant and M doubles, the quantity equation implies that the price level
a.
more than doubles.
b.
changes but less than doubles.
c.
doubles.
d.
does not change
171. If Y and M are constant and V doubles, the quantity equation implies that the price level
a.
falls to half its original level.
b.
doubles.
c.
more than doubles.
d.
does not change.
172. If V and M are constant and Y doubles, the quantity equation implies that the price level
a.
falls to half its original level.
b.
does not change.
c.
doubles.
d.
more than doubles.
173. If velocity and output were nearly constant, then
a.
the inflation rate would be much higher than the money supply growth rate.
b.
the inflation rate would be about the same as the money supply growth rate.
c.
the inflation rate would be much lower than the money supply growth rate.
d.
any of the above would be possible.
174. Other things the same, an increase in velocity means that
a.
the rate at which money changes hands falls, so the price level rises.
b.
the rate at which money changes hands falls, so the price level falls.
c.
the rate at which money changes hands rises, so the price level rises.
d.
the rate at which money changes hands rises, so the price level falls.
175. Other things the same, an increase in velocity means that
a.
transactions per dollar increase so the price level rises.
b.
transactions per dollar increase so the price level falls.
c.
transactions per dollar decrease so the price level rises.
d.
transactions per dollar decrease so the price level falls.
176. Other things the same, a decrease in velocity means that
a.
the rate at which money changes hands falls, so the price level rises.
b.
the rate at which money changes hands falls, so the price level falls.
c.
the rate at which money changes hands rises, so the price level rises.
d.
the rate at which money changes hands rises, so the price level falls.
177. During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands
a.
decreased. Other things the same, a decrease in velocity decreases the price level.
b.
decreased. Other things the same, a decrease in velocity increases the price level.
c.
increased. Other things the same, an increase in velocity decreases the price level.
d.
increased. Other things the same, an increase in velocity increases the price level.
178. There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means
that
a.
velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P.
b.
velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.
c.
velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P.
d.
velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.
179. Suppose that velocity rises while the money supply stays the same. It follows that