# Ch. 30 Practice Quiz

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question
When prices are falling, economists say that there is
deflation.
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Economists all agree that
high inflation is costly, but disagree about the costs of moderate inflation.
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When the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises.
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The supply of money is determined by
the Federal Reserve System.
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When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a
movement to the right along the money demand curve.
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When the money market is drawn with the value of money on the vertical axis, if the value of money is below the equilibrium level,
the value of money will rise.
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When the money market is drawn with the value of money on the vertical axis, the price level decreases if
money demand shifts right or money supply shifts left.
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The price level is a
nominal variable.
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The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the
classical dichotomy.
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Based on the quantity equation, if M = 100, V = 3, and Y = 200, then P =
1.5
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According to the quantity equation if P = 4 and Y= 800, which of the following pairs could M and V be?
800, 4
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If velocity and output were nearly constant,
the inflation rate would be about the same as the money supply growth rate.
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Suppose that over some period the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now
1.5 times its old value.
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If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent, what is the real interest rate?
7 percent
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Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with
both higher inflation and higher nominal interest rates.
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For a given real interest rate, an increase in inflation makes the after-tax real interest rate
decrease, which discourages savings.
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Wealth is redistributed from debtors to creditors when inflation is
unexpectedly low.
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True or False: The quantity theory of money can explain hyperinflations but not moderate inflation.
False
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True or False: When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.
False
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True or False: The source of all four classic hyperinflations was high rates of money growth.
True
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True or False: In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.