Topic 6. Money Growth and Inflation

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14 Terms

1

An example of a real variable is

a. 

The wage rate in euros.

b. 

None of these answers are real variables.

c. 

The price of corn.

d. 

The nominal interest rate.

e. 

The ratio of the value of wages to the price of fizzy drinks.

e

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2

Deflation

a. 

Increases incomes and enhances the ability of debtors to pay off their debts.

b. 

Increases incomes and reduces the ability of debtors to pay off their debts.

c. 

Decreases nominal incomes and enhances the ability of debtors to pay off their debts.

d. 

Decreases nominal incomes and reduces the ability of debtors to pay off their debts.

d

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3

If actual inflation turns out to be greater than people had expected, then

a. 

No redistribution occurred.

b. 

Wealth was redistributed to lenders from borrowers.

c. 

The real interest rate is unaffected.

d. 

Wealth was redistributed to borrowers from lenders.

d

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4

If money is neutral

a. 

An increase in the money supply does nothing.

b. 

A change in the money supply only affects real variables such as real output.

c. 

A change in the money supply reduces velocity proportionately; therefore there is no effect on either prices or real output.

d. 

A change in the money supply only affects nominal variables such as prices and wages.

e. 

The money supply cannot be changed because it is tied to a commodity such as gold.

d

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5

If real GDP falls and the nominal interest rate rises, then the equilibrium price level

Pregunta 5Trieu-ne una:

a. 

Must fall.

b. 

Must rise.

c. 

Will fall if the effect of the decline in real GDP dominates.

d. 

Will fall if the effect of the increase in the nominal interest rate dominates.

b

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6

If the price level doubles,

a. 

The quantity demanded of money falls by half.

b. 

The value of money is cut in half

c. 

Nominal income is unaffected.

d. 

None of these answers.

e. 

The money supply is cut in half.

b

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7

In the long run, inflation is caused by

Pregunta 8Trieu-ne una:

a. 

Governments that raise taxes so high that it increases the cost of doing business and, hence, raise prices.

b. 

Banks that have market power and refuse to lend money.

c. 

None of these answers.

d. 

Governments that print too much money.

e. 

Increases in the price of inputs, such as labour and oil.

d

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8

In the quantity theory of money

Pregunta 9Trieu-ne una:

a. 

Prices are rigid.

b. 

Both velocity of money and real output are variable.

c. 

Changes in the money supply cause changes in velocity of money.

d. 

The velocity of money is assumed to be stable.

d

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9

Suppose an economy produces only ice cream cones.  If the price level rises, the value of currency

Pregunta 10Trieu-ne una:

a. 

Rises, because one unit of currency buys more ice cream cones.

b. 

Rises, because one unit of currency buys fewer ice cream cones.

c. 

Falls, because one unit of currency buys more ice cream cones.

d. 

Falls, because one unit of currency buys fewer ice cream cones.

d

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10

When prices are falling, economists say that there is

Pregunta 11Trieu-ne una:

a. 

Disinflation.

b. 

Deflation.

c. 

A contraction.

d. 

An inverted inflation.

b

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11

When prices rise at an extraordinarily fast rate, it is called

a. 

Disinflation.

b. 

Deflation.

c. 

Hyperinflation.

d. 

Inflation.

e. 

Hypo inflation.

c

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12

An increase in the price level is the same as a decrease in the value of money.

Pregunta 13Trieu-ne una:

Vertader 

Fals

v

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13

If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.

Pregunta 14Trieu-ne una:

Vertader 

Fals

f

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14

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Pregunta 16Trieu-ne una:

Vertader 

Fals

f

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