B. 3 percent.
C. 5 percent.
D. 7 percent.
63. According to the quantity theory:
A. unemployment is everywhere and always a monetary phenomenon.
B. inflation is everywhere and always a monetary phenomenon.
C. the equation of exchange does not hold true.
C. real output is everywhere and always a monetary phenomenon.
64. According to the quantity theory of money, inflation is attributable to increases in:
A. velocity.
B. real GDP.
C. velocity in excess of increases in real GDP.
D. the money supply in excess of increases in real GDP.
65. The quantity theory of money implies that an increase in the money supply will ultimately:
A. increase the price level and leave real GDP unchanged.
B. affect only the level of real GDP; the price level will remain unchanged.
C. increase the price level and the level of real GDP.
D. decrease the price level and the level of real GDP.
66. The equation of exchange is expressed as:
A. MR = PQ.
B. MV = PQ.
C. MPP = P.
D. MR = MC.
67. One assumption that changes the equation of exchange into the quantity theory of money is:
A. velocity remains constant.
B. real output varies with the money supply.
C. expectations change with inflation.
D. ptimes quantity equals nominal output.
68. According to the quantity theory of money, velocity:
A. varies substantially with changes in the rate of interest and the expected rate of inflation.
B. varies with changes in the growth rate of the money supply.
C. is fairly constant, responding only to changes in the expected rate of inflation.
D. is virtually constant, responding only to changes in the underlying institutional structure.
69. Velocity can be calculated as the ratio of:
A. nominal GDP to real GNP.
B. nominal GDP to the money supply.
C. real GDP to the price level.
D. the money supply to the price level.
70. Suppose a country has a velocity of money equal to 12 and nominal GDP of $30 billion.
This means that each dollar in this economy is supporting approximately:
A. $10 in total income.
B. $30 in total income.
C. $1.5 in total income.
D. $12 in total income.
71. M2 is $8 trillion and nominal GDP is about $14.2 trillion. What is the velocity of money?
A. 1.8
B. 8.0
C. 112
D. We cannot compute it without knowing real GDP
72. If the velocity of money is about 1.8 and money stock is about $8 trillion, what is real GDP?
A. $0.8 trillion
B. $4.4 trillion
C. $14.2 trillion
D. we cannot compute real GDP from the data; we can only compute nominal GDP
73. If the velocity of money is about 1.8 and nominal GDP is $14.4 trillion, what is the money
supply?
A. $1.8 trillion
B. $8.0 trillion
C. $14.4 trillion
D. we cannot compute the money supply from the data given
74. If the money supply is 500 and velocity is 6, then nominal GDP:
A. is 83.33.
B. is 500.
C. is 3000.
D. cannot be determined.
75. Suppose that real output is fixed and equal to 400 while velocity is fixed and equal to 5.
Then, if the money supply is equal to 200, the price level will be:
A. 2.5.
B. 5.
C. 7.5.
D. 10.
76. If the velocity of money falls from 1.95 to 1.85, the decline in velocity implies that:
A. inflation increases.
B. inflation decreases.
C. money stock grows faster than nominal GDP.
D. money stock grows more slowly than nominal GDP.
77. If the velocity of money is increasing, but the money supply is not, it is likely the economy
is experiencing:
A. a trade deficit.
B. deflation.
C. growth.
D. inflation.
78. The quantity theory of money concludes that if real output is constant:
A. changes in the price level are caused by changes in the money supply.
B. real GDP and the money supply are related in the long run.
C. changes in velocity are proportional to changes in nominal income.
D. changes in velocity are proportional to changes in the money supply.
79. If the U.S. money supply increases from $7.6 trillion to $8.3 trillion. If there is zero real
economic growth, and velocity stays constant, then according to the quantity theory of money,
the U.S. inflation rate during this period would be:
A. 3 percent.
B. 6 percent.
C. 9 percent.
D. 12 percent.
80. According to the quantity theory of money, persistent inflation can only be caused by:
A. a low rate of unemployment.
B. money supply growth that exceeds real GDP growth.
C. a high rate of unemployment.
D. a continually growing government deficit.
81. Assuming velocity is constant, the rate of inflation equals the difference between the rate of:
A. unemployment and the rate of economic growth.
B. growth in the money supply and the rate of growth in nominal GDP.
C. growth in real wages and the rate of growth in real GDP.
D. growth in the money supply and the rate of growth in real GDP.
82. If the money stock grows by 13 percent, and during that same time nominal GDP grows by
3.3 percent, what can we deduce happens to velocity during this period?
A. We cannot tell without knowing what happened to prices.
B. It remained constant.
C. It rose.
D. It fell.
83. According to the quantity theory of money, if the monetary authorities allow the money
supply to grow at a rate of 6 percent in an economy that is growing by 2 percent in real terms,
then inflation will be:
A. 2 percent.
B. 4 percent.
C. 6 percent.
D. 8 percent.
84. Economists who believe in the quantity theory of money argue that:
A. the causation in the equation of exchange goes from PQ to MV.
B. the causation in the equation of exchange goes from MV to PQ.
C. the causation in the equation of exchange could go either way.
D. there is no causation in the equation of exchange.
85. Institutionally focused economists argue:
A. the equation of exchange is incorrect.
B. the equation of exchange should be read from right to left.
C. the equation of exchange should be read from left to right.
D. both the quantity theory and the equation of exchange are incorrect.
86. According to institutionally focused economists,
A. the direction of causation goes from MV to PQ.
B. the direction of causation goes from PQ to MV.
C. there is no relationship between PQ and MV because V is constant.
D. there is no relationship between PQ and MV because Q isn’t constant.
87. According to institutionally focused economists,
A. the direction of causation goes from MV to PQ.
B. asset inflation is a phenomenon that cannot occur.
C. inflation is double the rise in money supply.
D. price-setting conventions by institutions are the source of inflation.
88. The institutionalist theory of inflation differs from that of the quantity theory by focusing on:
A. how firms determine wages and prices.
B. the equation of exchange.
C. the rate of growth in the money supply.
D. the institutions that determine how the money supply is determined.
89. According to the quantity theory of money, if the money supply increases by 12 percent,
then in the long run prices go:
A. down by 12 percent.
B. up by less than 12 percent.
C. up by 12 percent.
D. up by more than 12 percent.
90. In the equation of exchange, if the velocity of money is constant, a 10 percent increase in the
money supply must:
A. increase the price level by 10 percent.
B. result in a higher level of unemployment.
C. increase real GDP by 10 percent.
D. increase nominal GDP by 10 percent.
91. Which of the following is not one of the assumptions of the quantity theory of money?
A. Velocity is constant
B. The money growth rate is constant
C. Real output is independent of the money supply
D. Causation goes from money supply to prices
92. Which of the following statements is consistent with the quantity theory of money?
A. Monetary policy should be used in the short run to try to steer the economy.
B. The money supply should be increased by a percentage to allow for changes in productivity
and growth, but that percentage cannot be determined.
C. Expansionary monetary policy is the only way to prevent a mild recession from developing
into a serious recession or depression.
D. A prescribed monetary policy should be followed regardless of what’s happening in the
economy.
93. A reason that the quantity theory of money has lost favor is that:
A. it did not predict the asset price inflation.
B. the velocity of money is not constant.
C. banks no longer hold reserves.
D. the federal funds market has been taken over by the Federal Reserve bank.
94. A reason why the quantity theory of money is problematic is that:
A. money supply increases generally affect only goods prices.
B. the Fed generally runs expansionary monetary policy.
C. the velocity of money has fluctuated over time.
D. real output rises during expansions and falls during contractions.
95. Suppose the money supply increases by 10 percent but velocity is not constant. Given this
information, it follows that:
A. nominal GDP will increase by 10 percent.
B. nominal GDP will increase by less than 10 percent.
C. nominal GDP will increase by more than 10 percent.
D. the change in nominal GDP cannot be determined.
96. Suppose velocity is constant but real GDP is not independent of the money supply. If this is
the case, a 10 percent increase in the money supply will:
A. raise inflation by 10 percent.
B. raise inflation by less than 10 percent.
C. raise inflation by more than 10 percent.
D. have an unpredictable effect on inflation.
97. The quantity theory of money:
A. does not explain inflation in the real world at all.
B. explains low inflation rates well but does not explain high inflation rates well.
C. explains high inflation rates well but does not explain low inflation rates well.
D. provides a comprehensive explanation of inflation.
98. The quantity theory of money:
A. is no longer relevant.
B. is relevant in some cases but not others.
C. has become increasingly irrelevant.
D. is more relevant today than ever before.
99. A reason that the quantity theory of money has lost favor is that:
A. money growth and inflation are no longer closely related.
B. the quantity of money is better at predicting stock prices.
C. the economy recently experienced an unexpected and deep recession.
D. the federal funds market has been taken over by the Federal Reserve bank.
100. Stagflation is a combination of:
A. low and decelerating inflation and low unemployment.
B. low and decelerating inflation and high unemployment.
C. high and accelerating inflation and low unemployment.
D. high and accelerating inflation and high unemployment.
101. The Phillips curve represents a relationship between:
A. inflation and unemployment.
B. inflation and real income.
C. money supply and interest rates.
D. money supply and unemployment.
[QUESTION]
102 The short-run Phillips curve tells us in theory what combinations of:
A. inflation and output are feasible.
B. the price level and output are feasible.
C. inflation and unemployment are possible when expectations of inflation are constant.
D. the price level and unemployment are possible when expectations of inflation are constant.
[QUESTION]
103. On the short-run Phillips curve, the expectations of inflation:
A. are rising.
B. are falling.
C. remain constant.
D. are rising or falling depending on how the economy is performing.
104. Which of the following remains constant along the short-run Phillips curve?
A. Unemployment
B. Inflationary expectations
C. Inflation
D. Output
105. Refer to the graph shown. The relationship represented in the figure is called a:
A. labor supply curve.
B. labor demand curve.
C. short-run Phillips curve.
D. long-run Phillips curve.
106. The problem portrayed by the short-run Phillips curve is that:
A. unemployment tends to increase when prices are rising.
B. changes in the composition of the labor force tend to increase the natural rate of
unemployment.
C. inflation tends to increase when unemployment falls.
D. stagflation is unavoidable.
107. The short-run Phillips curve tells policy makers that if inflation is currently 6 percent and
unemployment is 4 percent, measures to reduce the inflation rate to 4 percent will most likely
lead to an unemployment rate of:
A. 0 percent.
B. 2 percent.
C. 4 percent.
D. 6 percent.
108. Along the long-run Phillips curve, inflation and expected inflation are:
A. constant but not equal.
B. both constant and equal.
C. equal but not constant.
D. neither equal nor constant.
109. The long-run Phillips curve is:
A. downward-sloping, implying a trade-off between unemployment and inflation.
B. downward-sloping, implying that the unemployment rate always returns to its natural rate in
the long run.
C. vertical, implying a long-run trade-off between unemployment and inflation.
D. vertical, implying that the unemployment rate always returns to its target rate in the long run.
110. The slope of the long-run Phillips curve is thought by many economists to be:
A. horizontal.
B. vertical.
C. downward sloping.
D. backward bending.
111. As the economy moves to the right of the long-run Phillips curve inflationary:
A. pressures build.
B. pressures subside.
C. pressures remain constant.
D. expectations rise.