Money Growth and Inflation 7349
20. In the long run, money demand and money supply determine
a. the value of money and the real interest rate.
b. the value of money but not the real interest rate.
c. the real interest rate but not the value of money.
d. neither the value of money nor the real interest rate.
21. In the long run, money demand and money supply determine
a. the price level and the real interest rate.
b. the price level but not the real interest rate.
c. the real interest rate but not the price level.
d. neither the price level nor the real interest rate.
7350 Money Growth and Inflation
22. Money demand refers to
a. the total quantity of financial assets that people want to hold.
b. how much income people want to earn per year.
c. how much wealth people want to hold in liquid form.
d. how much currency the Federal Reserve decides to print.
23. The primary reason people hold money is
a. to keep wealth in a less liquid form.
b. to use it as a medium of exchange.
c. to use it for investment.
d. to earn interest.
Money Growth and Inflation 7351
24. Money demand depends on
a. the price level and the interest rate.
b. the price level but not the interest rate.
c. the interest rate but not the price level.
d. neither the price level nor the interest rate.
25. As the price level decreases, the value of money
a. increases, so people must hold less money to purchase goods and services.
b. increases, so people must hold more money to purchase goods and services.
c. decreases, so people must hold more money to purchase goods and services.
d. decreases, so people must hold less money to purchase goods and services.
7352 Money Growth and Inflation
26. As the price level rises, the value of money
a. increases, so people must hold less money to purchase goods and services.
b. increases, so people must hold more money to purchase goods and services.
c. decreases, so people must hold more money to purchase goods and services.
d. decreases, so people must hold less money to purchase goods and services.
27. When the Consumer Price Index increases from 100 to 120
a. more money is needed to buy the same amount of goods, so the value of money falls.
b. more money is needed to buy the same amount of goods, so the value of money rises.
c. less money is needed to buy the same amount of goods, so the value of money falls.
d. less money is needed to buy the same amount of goods, so the value of money rises.
Money Growth and Inflation 7353
28. When the Consumer Price Index falls from 110 to 100
a. there is inflation of 9.1% and the value of money decreases.
b. there is deflation of 9.1% and the value of money increases.
c. there is deflation of 10% and the value of money increases.
d. there is inflation of 10% and the value of money decreases.
29. As the Consumer Price Index increases, the value of money
a. falls, so people hold more money to buy the goods and services they want.
b. falls, so people hold less money to buy the goods and services they want.
c. rises, so people hold more money to buy the goods and services they want.
d. rises, so people hold less money to buy the goods and services they want.
7354 Money Growth and Inflation
30. When the money market is drawn with the value of money on the vertical axis, as the price level
increases the quantity of money
a. demanded increases.
b. demanded decreases.
c. supplied increases.
d. supplied decreases.
31. When the money market is drawn with the value of money on the vertical axis, as the price level
decreases the quantity of money
a. demanded increases.
b. demanded decreases.
c. supplied increases.
d. supplied decreases.
Money Growth and Inflation 7355
32. If the value of a dollar falls, then the quantity of money demanded
a. rises, meaning people want to hold more of their wealth in a liquid form.
b. rises, meaning people desire to work more so their income rises.
c. falls, meaning people want to hold less of their wealth in a liquid form.
d. falls, meaning people want to work less so their income falls.
33. When the money market is drawn with the value of money on the vertical axis, as the price level
increases which of the following increases?
a. the quantity of money demanded and the quantity of money supplied
b. the quantity of money demanded but not the quantity of money supplied
c. the quantity of money supplied but not the quantity of money demanded
d. neither the quantity of money supplied nor the quantity of money demanded
7356 Money Growth and Inflation
34. When the money market is drawn with the value of money on the vertical axis, as the price level
increases, the value of money
a. increases, so the quantity of money demanded increases.
b. increases, so the quantity of money demanded decreases.
c. decreases, so the quantity of money demanded decreases.
d. decreases, so the quantity of money demanded increases.
35. When the money market is drawn with the value of money on the vertical axis, as the price level
decreases, the value of money
a. increases, so the quantity of money demanded increases.
b. increases, so the quantity of money demanded decreases.
c. decreases, so the quantity of money demanded decreases.
d. decreases, so the quantity of money demanded increases.
Money Growth and Inflation 7357
36. When the money market is drawn with the value of money on the vertical axis, the money
demand curve slopes
a. upward, because at higher prices people want to hold more money.
b. downward, because at higher prices people want to hold more money.
c. downward, because at higher price people want to hold less money.
d. upward, because at higher prices people want to hold less money.
37. When the money market is drawn with the value of money on the vertical axis, a decrease in the
price level causes a
a. movement to the right along the money demand curve.
b. movement to the left along the money demand curve.
c. shift to the right of the money supply curve.
d. shift to the left of the money supply curve.
7358 Money Growth and Inflation
38. When the money market is drawn with the value of money on the vertical axis, an increase in the
price level causes a
a. shift to the right of the money demand curve.
b. shift to the left of the money demand curve.
c. movement to the left along the money demand curve.
d. movement to the right along the money demand curve.
39. When the money market is drawn with the value of money on the vertical axis,
a. money demand slopes upward and money supply is horizontal.
b. money demand slopes downward and money supply is horizontal.
c. money demand slopes upward and money supply is vertical.
d. money demand slopes downward and money supply is vertical.
Money Growth and Inflation 7359
40. When 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 due
to adjustments in
a. the value of money.
b. real interest rates.
c. nominal interest rates.
d. the money supply.
41. When 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 due
to adjustments in
a. nominal interest rates.
b. real interest rates.
c. the price level.
d. the money supply.
7360 Money Growth and Inflation
42. When the money market is drawn with the value of money on the vertical axis, if the price level is
above the equilibrium level, there is an
a. excess demand for money, so the price level will rise.
b. excess demand for money, so the price level will fall.
c. excess supply of money, so the price level will rise.
d. excess supply of money, so the price level will fall.
43. When the money market is drawn with the value of money on the vertical axis, if the price level is
below the equilibrium level, there is an
a. excess demand for money, so the price level will rise.
b. excess demand for money, so the price level will fall.
c. excess supply of money, so the price level will rise.
d. excess supply of money, so the price level will fall.
Money Growth and Inflation 7361
44. When the money market is drawn with the value of money on the vertical axis, if the price level is
above the equilibrium level, there is an
a. excess demand for money, so the price level will rise.
b. excess demand for money, so the price level will fall.
c. excess supply of money, so the price level will rise.
d. excess supply of money, so the price level will fall.
45. When the money market is drawn with the value of money on the vertical axis, if the value of
money is above the equilibrium level,
a. the price level will rise.
b. the value of money will rise.
c. money demand will shift leftward.
d. money demand will shift rightward.
7362 Money Growth and Inflation
46. When the money market is drawn with the value of money on the vertical axis, if there is a
shortage of money then
a. the value of money rises which will make people desire to hold more money.
b. the value of money rises which will make people desire to hold less money.
c. the value of money falls which will make people desire to hold more money.
d. the value of money falls which will make people desire to hold less money.
47. Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium.
If the money supply increases, then at the old value of money there is an
a. excess demand for money that will result in an increase in spending.
b. excess demand for money that will result in a decrease in spending.
c. excess supply of money that will result in an increase in spending.
d. excess supply of money that will result in a decrease in spending.
Money Growth and Inflation 7363
48. When the money market is drawn with the value of money on the vertical axis, an increase in the
money supply shifts the money supply curve to the
a. right, lowering the price level.
b. right, raising the price level.
c. left, raising the price level.
d. left, lowering the price level.
49. When the money market is drawn with the value of money on the vertical axis, if the money
supply rises
a. the price level and the value of money rise.
b. the price level rises and the value of money falls.
c. the price level falls and the value of money rises.
d. the price level and the value of money fall.
7364 Money Growth and Inflation
50. When the money market is drawn with the value of money on the vertical axis, an increase in the
money supply
a. increases the price level and increases the value of money.
b. increases the price level and decreases the value of money.
c. decreases the price level and increases the value of money.
d. decreases the price level and decreases the value of money.
51. When the money market is drawn with the value of money on the vertical axis, an increase in the
money supply causes the equilibrium value of money
a. and equilibrium quantity of money to increase.
b. and equilibrium quantity of money to decrease.
c. to increase, while the equilibrium quantity of money decreases.
d. to decrease, while the equilibrium quantity of money increases.
Money Growth and Inflation 7365
52. When the money market is drawn with the value of money on the vertical axis, an increase in the
money supply creates an excess
a. supply of money, causing people to spend more.
b. supply of money, causing people to spend less.
c. demand for money, causing people to spend more.
d. demand for money, causing people to spend less.
53. A decrease in the money supply creates an excess
a. supply of money that is eliminated by rising prices.
b. supply of money that is eliminated by falling prices.
c. demand for money that is eliminated by rising prices.
d. demand for money that is eliminated by falling prices.
7366 Money Growth and Inflation
54. The supply of money increases when
a. the value of money increases.
b. the interest rate increases.
c. the Federal Reserve purchases bonds.
d. velocity increases.
55. If the Fed increases the money supply, then 1/P
a. falls, so the value of money falls.
b. falls, so the value of money rises.
c. rises, so the value of money falls.
d. rises, so the value of money rises.
Money Growth and Inflation 7367
56. The economy of Mainland uses gold as its money. If the government discovers a large reserve of
gold on their land
a. the supply of money decreases and the value of money rises.
b. the supply of money increases and the value of money falls.
c. the demand for money increases and the value of money rises.
d. the demand for money decreases and the value of money falls.
57. In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where
he gave away much gold, which was in use as a medium of exchange. We would predict that this
increase in gold
a. raised both the price level and the value of gold in Cairo.
b. raised the price level, but decreased the value of gold in Cairo.
c. lowered the price level, but increased the value of gold in Cairo.
d. lowered both the price level and the value of gold in Cairo.
7368 Money Growth and Inflation
58. In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks
in many countries increased their money supplies. The central banks might have done this by
a. selling bonds on the open market, which would have raised the value of money.
b. purchasing bonds on the open market, which would have raised the value of money.
c. selling bonds on the open market, which would have raised the value of money.
d. purchasing bonds on the open market, which would have lowered the value of money.
59. Open-market purchases by the Fed make the money supply
a. increase, which makes the value of money increase.
b. increase, which makes the value of money decrease.
c. decrease, which makes the value of money decrease.
d. decrease, which makes the value of money increase.