Money Growth and Inflation 7409
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.
7410 Money Growth and Inflation
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.
Money Growth and Inflation 7411
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.
7412 Money Growth and Inflation
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.
Money Growth and Inflation 7413
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.
7414 Money Growth and Inflation
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.
Money Growth and Inflation 7415
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
7416 Money Growth and Inflation
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.
Money Growth and Inflation 7417
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.
7418 Money Growth and Inflation
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.
Money Growth and Inflation 7419
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.
7420 Money Growth and Inflation
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.
Money Growth and Inflation 7421
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.
7422 Money Growth and Inflation
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.
Money Growth and Inflation 7423
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
7424 Money Growth and Inflation
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.
Money Growth and Inflation 7425
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
7426 Money Growth and Inflation
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.
Money Growth and Inflation 7427
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.
7428 Money Growth and Inflation
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.