# Ch. 17 Macro Homework

## Unlock all answers in this set

question
If the price level increased from 120-130 then what was the inflation rate?
8.3%
question
When prices are falling, economists say that there is
deflation
question
To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the
quantity theory of money
question
When the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises
question
When there is inflation, the number of dollars needed to buy a representative basket of goods
increases, and so the value of money falls
question
If P denotes the price of goods and services measured in terms of money, then
1/P represents the value of money measured in terms of goods and services, P can be regarded as the "overall price level", and an increase in the value of money is associated with a decrease in P.
question
The supply of money is determined by
the Federal Reserve System
question
With the value of money on the vertical axis, the money supply curve is
vertical
question
Money demand refers to
how much wealth people want to hold in liquid form
question
As the price level decreases, the value of money
increases, so people hold less money to purchase goods and services
question
When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money
demanded increases
question
When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money
increases, so the quantity of money demanded decreases
question
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
the price level
question
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,
the price level will rise
question
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
excess supply of money that will result in an increase in spending
question
When the money market is drawn with the value of money on the vertical axis, an increase in the money supply
increases the price level and decreases the value of money
question
A decrease in the money supply creates an excess
demand for money that is eliminated by falling prices
question
Economic variables whose values are measured in monetary units are called
nominal variables
question
The price level is a
nominal variable
question
On a given morning, Franco sold 40 pairs of shoes for a total of \$80 at his shoe store.
The \$80 is a nominal variable. The quantity of shoes is a real variable.
question
Classical economic theory argues that long run changes in the money supply
affect nominal variables, but not real variables
question
According to the classical economic theory, which of the following is not influenced by long- run monetary factors?
real GDP
question
The principle of monetary neutrality implies that in the long run, an increase in the money supply will
increase the price level, but not real GDP
question
According to the principle of monetary neutrality, a decrease in the money supply in the long run will not change
unemployment
question
Most economists believe that monetary neutrality provides
a good description of the long run, but not the short run
question
The velocity of money is
the average number of times per year a dollar is spent
question
If M = 6,000, P = 3, and Y = 3,000, what is velocity?
1.5
question
If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is
32,000
question
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
1.20
question
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
nominal GDP would rise by 5 percent; real GDP would be unchanged
question
According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then
the price level would rise by 5 percent and real GDP would be unchanged
question
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?
The price level is 4 and velocity is 8
question
The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?
velocity but not the price level
question
If velocity and output were nearly constant, then
the inflation rate would be a bout the same as the money supply growth rate
question
According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then
both the price level and nominal GDP would rise by 5 perent
question
According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then
nominal GDP would fall by 7 percent; real GDP would be unchanged
question
Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?
a) The country has high money supply growth. b) Inflation is acting like a tax on everyone who holds money. c) The government is printing money to finance its expenditures.
question
The inflation tax
is an alternative to income taxes and government borrowing, taxes most those who hold the most money, and is the revenue created when the government prints money.
question
If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then
the expected real interest rate is 1 percent
question
The Fisher effect says that
the nominal interest rate adjusts one for one with the inflation rate
question
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases
the inflation rate and the nominal interest rate by the same number of percentage points
question
Shoe leather costs arise when higher inflation rates induce people to
hold less money
question
When inflation rises, people tend to go to the bank
more often, giving rise to shoe leather costs
question
Deciding on new prices, printing new price lists, and advertising new prices are all ______.
question
If there is inflation, then a firm that has kept its price fixed for some time will have a
low relative price. Relative price variability rises as the inflation rate rises.
question
In the US, people are required to pay taxes on
nominal interest earnings, irrespective of their real interest earnings.
question
US taxpayers are not allowed to adjust interest income or capital gains for inflation of purpose of _____.
income taxes
question
You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced