Chapter 28 Money Growth and Inflation
Test B
1
Which of the following concerning U.S. inflation is incorrect? a. Over the last 60 years the average inflation rate was about 5%. b. In the nineteenth century there were erio!s of !eflation. c. Inflation was relatively low in the 1""0s. !. #ar$ers were es ecially hurt by the high inflation of the late 1%00s. &'SW()* !. #ar$ers were es ecially hurt by the high inflation of the late 1%00s. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
5
+he 6uantity theory of $oney is hel ful for e7 laining a. hy erinflation only. b. $o!erate inflation only. c. 2oth $o!erate inflation an! hy erinflation. !. 'either $o!erate inflation nor hy erinflation. &'SW()* c. 2oth $o!erate inflation an! hy erinflation. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
8
When the rice level falls9 1:a. increases an! the value of $oney increases. b. increases an! the value of $oney !ecreases. c. !ecreases an! the value of $oney increases. !. !ecreases an! the value of $oney !ecreases. &'SW()* a. increases an! the value of $oney increases. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
;
+he $oney su ly curve shifts right if a. the #e! sells bon!s in the o en $ar<et. b. 1:- rises. c. the #e! buys bon!s in the o en $ar<et. !. 2oth a an! b are correct. &'SW()* c. the #e! buys bon!s in the o en $ar<et. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
5
&s the rice level increases9 eo le want to hol! a a. larger 6uantity of $oney as shown by $oving along the $oney !e$an! curve. b. larger 6uantity of $oney as shown by shifting the $oney !e$an! curve. c. s$aller 6uantity of $oney as shown by $oving along the $oney !e$an! curve. !. s$aller 6uantity of $oney as shown by shifting $oney !e$an! curve. &'SW()* a. larger 6uantity of $oney as shown by $oving along the $oney !e$an! curve. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
6
+he 6uantity of $oney su lie! is balance! with the 6uantity of $oney !e$an!e! by a!=ust$ents in the a. interest rate in both the long run an! the short run. b. rice level in both the long run an! the short run. c. interest rate in the long run an! a!=ust$ents in the rice level in the short run. !. rice level in the long run an! a!=ust$ents in the interest rate in the long run. &'SW()* !. rice level in the long run an! a!=ust$ents in the interest rate in the long run. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
1o yright > ?arcourt9 Inc.
5"
60 1ha ter 5%:.oney @rowth an! Inflation
A
& !ecrease in the e6uilibriu$ 6uality of $oney an! an increase in the e6uilibriu$ value of $oney coul! be create! by a. an increase in $oney !e$an!. b. an increase in $oney su ly. c. a !ecrease in $oney su ly. !. a !ecrease in $oney !e$an!. &'SW()* c. a !ecrease in $oney su ly. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* , NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
%
Su ose the econo$y is initially in $onetary e6uilibriu$. +he #e!eral )eserve then increases the $oney su ly. &s a result the 6uantity of $oney !e$an!e! will a. e7cee! the 6uantity of $oney su lie!9 an! the rice level will fall. b. e7cee! the 6uantity of $oney su lie!9 an! the rice level will increase. c. be less than the 6uantity of $oney su lie!9 an! the rice level will fall. !. be less than the 6uantity of $oney su lie!9 an! the rice level will increase. &'SW()* !. be less than the 6uantity of $oney su lie!9 an! the rice level will increase. +,-(* . /(,1* 1 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
"
Which of the following both cause the rice level to !ecrease? a. an increase in $oney su ly an! an increase in $oney !e$an!. b. an increase in $oney su ly an! a !ecrease in $oney !e$an!. c. a !ecrease in $oney su ly an! an increase in $oney !e$an!. !. a !ecrease in $oney su ly an! a !ecrease in $oney !e$an!. &'SW()* b. an increase in $oney su ly an! a !ecrease in $oney !e$an!. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* , NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
10
Which of the following is an e7a$ le of a real variable? a. the inco$e of your econo$ics rofessor b. the !ollar value of the econo$yBs out ut c. the 6uantity of rice ro!uce! by a rice far$er !. the rofits earne! by #or! .otor 1o$ any in 5000 &'SW()* c. the 6uantity of rice ro!uce! by a rice far$er +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
11
If there is $onetary neutrality which of the following change when the $oney su a. real interest rates b. the rice level c. e$ loy$ent !. buil!ing an! $o!erniCing of factories. &'SW()* b. the rice level +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
ly changes?
1o yright > ?arcourt9 Inc.
1ha ter 5%:.oney @rowth an! Inflation 61
15
+o!ay $ost econo$ists acce t ?u$eBs conclusion of $onetary neutrality as an accurate !escri tion of the econo$y in a. both the long run an! the short run. b. neither the short run nor the long run. c. the short run only. !. the long run only. &'SW()* !. the long run only. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
18
+he econo$y of ($ e ro!uces only co$ act !iscs. In a recent year they ro!uce! 69000 co$ act !iscs at a rice of D15 each. +hey ha! a $oney su ly of D69000. #or that year the velocity of $oney in ($ e a. was 1:15. b. was 1. c. was 15. !. cannot be !eter$ine! fro$ the infor$ation given. &'SW()* c. was 15. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
1;
&ccor!ing to the 6uantity e6uation9 other things the sa$e9 the rice level woul! increase if either the $oney su ly a. or the velocity of $oney increase!. b. or the velocity of $oney !ecrease!. c. increase! or the velocity of $oney !ecrease!. !. !ecrease! or the velocity of $oney increase!. &'SW()* a. or the velocity of $oney increase!. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
15
1onsi!er the following two assu$ tions. +he velocity of $oney is stable over ti$e. #actory su ro!uction technology ri$arily !eter$ine the econo$yBs out ut of goo!s an! services. a. 2oth assu$ tions are i$ ortant to the 6uantity theory of $oney. b. 'either assu$ tion is i$ ortant to the 6uantity theory of $oney. c. Only the first assu$ tion is i$ ortant to the 6uantity theory of $oney. !. Only the secon! assu$ tion is i$ ortant to the 6uantity theory of $oney. &'SW()* a. 2oth assu$ tions are i$ ortant to the 6uantity theory of $oney. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
16
lies an!
0ata on hy erinflation in!icates9 a. that $oney su ly growth was $uch greater than inflation. b. that $oney su ly growth was about the sa$e as inflation. c. that $oney su ly growth was $uch less than inflation. !. no close relationshi between $oney su ly growth an! inflation. &'SW()* b. that the $oney su ly growth was about the sa$e as inflation. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 8 )&'0O.* , NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
1A
&n analysis of countries e7 eriencing ra i! rates of inflation in!icates that inflation is generally* a. cause! by strong labor unions. b. the result of restrictive $acro olicy9 which ushes u interest rates. c. cause! by the i$ ulse buying of consu$ers9 who continue to urchase the sa$e goo!s even when rices go u . !. the result of allowing the $oney su ly to grow too ra i!ly. &'SW()* !. the result of allowing the $oney su ly to grow too ra i!ly. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 8 )&'0O.* ,
1o yright > ?arcourt9 Inc.
65 1ha ter 5%:.oney @rowth an! Inflation
1%
+he inflation ta7 refers to the ten!ency a. of real interest rates to rise when $oney su ly growth rises. b. for the value of !ollars eo le hol! to fall as the govern$ent rints $ore $oney. c. for eo le to ay $ore inco$e ta7 as rices rise. !. &ll of the above are correct. &'SW()* b. for the value of !ollars eo le hol! to fall as the govern$ent rints $ore $oney. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* ; )&'0O.* ,
1"
&ccor!ing to the #isher effect9 when the rate of $oney su ly growth increases a. both real an! no$inal interest rates shoul! increase. b. both real an! no$inal interest rates shoul! !ecrease. c. real interest rates shoul! increase an! no$inal interest rates shoul! be unchange!. !. 'one of the above is correct. &'SW()* !. 'one of the above is correct. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* ; )&'0O.* ,
50
Inflation was higher in &rgentina in the 1"%0s than in the 1""0s. If the #isher effect is correct9 we woul! e7 ect to observe that in &rgentina a. no$inal interest rates were higher in the 1"%0s than in the 1""0s. b. no$inal interest rates were higher in the 1""0s than in the 1"%0s. c. real interest rates were higher in the 1"%0s than in the 1""0s. !. real interest rates were higher in the 1""0s than in the 1"%0s. &'SW()* a. no$inal interest rates were higher in the 1"%0s than in the 1""0s. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* ; )&'0O.* ,
51
If wages an! rices both rose by 5%9 wor<ersB a. real wages woul! rise so they woul! be betterEoff. b. real wages woul! be unchange!9 so they woul! be neither betterEoff nor worseEoff. c. no$inal wage woul! fall9 so they woul! be worseEoff. !. 'one of the above is correct. &'SW()* b. real wages woul! be unchange!9 so they woul! be neither betterEoff nor worseEoff. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
55
Shoeleather costs refer to a. resources eo le use to re!uce their $oney hol!ings when inflation is high. b. the ten!ency of so$e costs to rise $ore than others when inflation rises. c. the costs incurre! by eo le loo<ing for betterE aying =obs when inflation rises. !. &ll of the above are correct. &'SW()* a. resources eo le use to re!uce their $oney hol!ings when inflation is high. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
58
.enu costs refer to the costs of a. co$ aring rices. b. changing rices. c. co$ aring alternative invest$ents. !. &ll of the above are correct. &'SW()* b. changing rices. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
1o yright > ?arcourt9 Inc.
1ha ter 5%:.oney @rowth an! Inflation 68
5;
If the no$inal interest rate is 10%9 the inflation rate is 6%9 an! the ta7 rate is 50%9 what is the afterEta7 real rate of interest? a. ;% b. 8.5% c. 5.%% !. 5% &'SW()* !. 5% +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
55
If a country su!!enly an! une7 ecte!ly re!uces $onetary growth inflation will be une7 ecte!ly a. low an! wealth is re!istribute! fro$ borrowers to len!ers. b. low an! wealth is re!istribute! fro$ len!ers to borrowers. c. high an! wealth is re!istribute! fro$ len!ers to borrowers. !. 'one of the above is correct. &'SW()* a. low an! wealth is re!istribute! fro$ borrowers to len!ers. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
1o yright > ?arcourt9 Inc.
&'SW()* !. #ar$ers were es ecially hurt by the high inflation of the lat 1%00Bs. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
5
&'SW()* c. 2oth $o!erate inflation an! hy erinflation. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
8
&'SW()* a. increases an! the value of $oney increases. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
;
&'SW()* c. the #e! buys bon!s in the o en $ar<et. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
5
&'SW()* a. larger 6uantity of $oney as shown by $oving along the $oney !e$an! curve. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
6
&'SW()* !. rice level in the long run an! a!=ust$ents in the interest rate in the long run. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
A
&'SW()* c. a !ecrease in $oney su ly. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
%
&'SW()* !. be less than the 6uantity of $oney su +,-(* . /(,1* 1 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
"
lie!9 an! the rice level will increase.
&'SW()* b. an increase in $oney su ly an! a !ecrease in $oney !e$an!. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 1 )&'0O.* ,
10
&'SW()* c. the 6uantity of rice ro!uce! by a rice far$er +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
11
&'SW()* b. the rice level +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
15
&'SW()* !. in the long run only. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
18
&'SW()* c. was 15. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
1;
&'SW()* a. or the velocity of $oney increase!. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
15
&'SW()* a. 2oth assu$ tions are i$ ortant to the 6uantity theory of $oney.
+,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 5 )&'0O.* ,
16
&'SW()* b. that the $oney su ly growth was about the sa$e as inflation. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 8 )&'0O.* ,
1A
&'SW()* !. the result of allowing the $oney su +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* 8 )&'0O.* ,
1%
ly to grow too ra i!ly.
&'SW()* b. for the value of !ollars eo le hol! to fall as the govern$ent rints $ore $oney. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* ; )&'0O.* ,
1"
&'SW()* !. 'one of the above is correct. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* ; )&'0O.* ,
50
&'SW()* a. no$inal interest rates were higher in the 1"%0s than in the 1""0s. +,-(* . /(,1* 0 S(1+IO'* 1 O23(1+I4(* ; )&'0O.* ,
51
&'SW()* b. real wages woul! be unchange!9 so they woul! be neither better off nor worse off. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
55
&'SW()* a. resources eo le use to re!uce their $oney hol!ings when inflation is high. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
58
&'SW()* b. changing rices. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
5;
&'SW()* !. 5% +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
55
&'SW()* a. low an! wealth is re!istribute! fro$ borrowers to len!ers. +,-(* . /(,1* 0 S(1+IO'* 5 O23(1+I4(* 5 )&'0O.* ,
