1、Chapter 30 /Money Growth and Inflation v 2067Chapter 30 Money Growth and InflationTRUE/FALSE1.The inflation rate is measured as the percentage change in a price index.ANS:TDIF:1REF:30-0NAT:AnalyticLOC:Unemployment and inflationTOP:InflationKEY: MSC:Definitional2.U.S. prices rose at an average annual
2、 rate of about 4 percent over the last 70 years.ANS:TDIF:1REF:30-0NAT:AnalyticLOC:The role of moneyTOP:InflationMSC:Analytical3.The United States has never had deflation.ANS:FDIF:1REF:30-0NAT:AnalyticLOC:The role of moneyTOP:DeflationMSC:Definitional4.In the 1990s, U.S. prices rose at about the same
3、 rate as in the 1970s.ANS:FDIF:1REF:30-0NAT:AnalyticLOC:The role of moneyTOP:U.S. inflationMSC:Definitional5.As the price level falls, the value of money falls.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Value | MoneyMSC:Interpretive6.The price level is determined by the supply of, and de
4、mand for, money.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Definitional7.If the quantity of money supplied is greater than the quantity demanded, then prices should fall.ANS:FDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical8.Dollar prices and r
5、elative prices are both nominal variables.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Nominal variables | Real variablesMSC:Definitional9.The quantity equation is M x V = P x Y.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Quantity equationMSC:Definitional10.According to the Fish
6、er effect, if inflation rises then the nominal interest rate rises.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Fisher effectMSC:Definitional11.An increase in money demand would create a surplus of money at the original value of money.ANS:FDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:
7、Money marketMSC:Applicative12.Hyperinflations are associated with governments printing money to finance expenditures.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:Unemployment and inflationTOP:HyperinflationMSC:Definitional13.For a given level of money and real GDP, an increase in velocity would lead to an incr
8、ease in the price level.ANS:TDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Velocity of moneyMSC:Analytical14.The quantity theory of money can explain hyperinflations but not moderate inflation.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:HyperinflationMSC:Interpretive15.If P represents
9、 the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money | ValueMSC:Interpretive16.When the value of money is on the vertical axis, an increase in the price level shifts mon
10、ey demand to the right.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money demandMSC:Applicative17.The money supply curve shifts to the left when the Fed buys government bonds.ANS:FDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money supplyMSC:Analytical18.When the value of money is on t
11、he vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.ANS:FDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money supplyMSC:Definitional19.If the Fed increases the money supply, the equilibrium value of money decreases an
12、d the equilibrium price level increases.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical20.A rising price level eliminates an excess supply of money.ANS:TDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical21.A rising value of money eliminates
13、 an excess supply of money.ANS:FDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical22.Nominal GDP measures output of final goods and services in physical terms.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Nominal variablesMSC:Interpretive23.The classical dichotomy
14、is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Classical dichotomyMSC:Definitional24.The irrelevance of monetary changes for
15、 real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.ANS:TDIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Monetary neutralityMSC:Interpretive25.The quantity theory of money implies that
16、 if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Quantity theoryMSC:Applicative26.The source of all four classic hyperinflations was high rates
17、of money growth.ANS:TDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:HyperinflationMSC:Definitional27.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.ANS:FDIF:1REF:30-1NAT:AnalyticLOC:The
18、 role of moneyTOP:Quantity theoryMSC:Definitional28.Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.ANS:TDIF:1REF:30-2NAT:AnalyticLOC:The role of moneyTOP:Shoeleather costs of inflationMSC:Definitional29.Shoeleat
19、her costs and menu costs are both costs of anticipated inflation.ANS:TDIF:1REF:30-2NAT:AnalyticLOC:Unemployment and inflationTOP:Shoeleather costs of inflation | Menu costs of inflationMSC:Definitional30.For a given real interest rate, an increase in the inflation rate reduces the after-tax real int
20、erest rate.ANS:TDIF:2REF:30-2NAT:AnalyticLOC:Unemployment and inflationTOP:Inflation | Taxes | Real interest rateMSC:Analytical31.Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.ANS:FDIF:2REF:30-2NAT:AnalyticLOC:The role of moneyTOP:Inflatio
21、n | Real interest rateMSC:Interpretive32.Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.ANS:FDIF:2REF:30-2NAT:AnalyticLOC:The role of moneyTOP:Inflation | Real interest rateMSC:Interpretive33.Suppose the nominal interest rate is 10 percent; the ta
22、x rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.ANS:FDIF:2REF:30-2NAT:AnalyticLOC:The role of moneyTOP:Taxes | Real interest rateMSC:Interpretive34.Suppose the nominal interest rate is 5 percent; the tax rate on inte
23、rest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.ANS:TDIF:2REF:30-2NAT:AnalyticLOC:The role of moneyTOP:Taxes | Real interest rateMSC:Interpretive35.If the Fed were to unexpectedly increase the money supply, creditors would gain a
24、t the expense of debtors.ANS:FDIF:1REF:30-2NAT:AnalyticLOC:The role of moneyTOP:Wealth redistribution | InflationMSC:Applicative36.If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.ANS:FDIF:2REF:30-2NAT:AnalyticLOC:Unemployment and i
25、nflationTOP:Menu costs of inflationMSC:Applicative37.Inflation is costly only if it is unanticipated.ANS:FDIF:1REF:30-2NAT:AnalyticLOC:Unemployment and inflationTOP:Inflation costsMSC:Interpretive38.Even though monetary policy is neutral in the short run, it may have profound real effects in the lon
26、g run.ANS:FDIF:1REF:30-3NAT:AnalyticLOC:The role of moneyTOP:Monetary neutralityMSC:InterpretiveSHORT ANSWER1.Why did farmers in the late 1800s dislike deflation?ANS:Most had large nominal debts. The decrease in the price level meant that they received less for what they produced and so made it hard
27、er to pay off the debts whose real value rose as prices fell.DIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:DeflationMSC:Analytical2.Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.ANS:When the money supply increases, the
28、re is an excess supply of money at the original value of money. After the money supply increases, people have more money than they want to hold in their purses, wallets and checking accounts. They use this excess money to buy goods and services or lend it out to other people to buy goods and service
29、s. The increase in expenditures causes prices to rise and the value of money to fall. As the value of money falls, the quantity of money people want to hold increases so that the excess supply is eliminated. At the end of this process the money market is in equilibrium at a higher price level and a
30、lower value of money.DIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical3.Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.ANS:When the Fed sells government bonds, the money supply decreases. This shifts the
31、 money supply curve from MS1 to MS2 and makes the value of money increase. Since money is worth more, it takes less to buy goods with it, which means the price level falls.DIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical4.Using separate graphs, demonstrate what happens to
32、 the money supply, money demand, the value of money, and the price level if:a.the Fed increases the money supply.b.people decide to demand less money at each value of money.ANS:a.The Fed increases the money supply. When the Fed increases the money supply, the money supply curve shifts right from MS1
33、 to MS2. This shift causes the value of money to fall, so the price level rises.b.People decide to demand less money at each value of money. Since people want to hold less at each value of money, it follows that the money demand curve will shift to the left from MD1 to MD2. The decrease in money dem
34、and results in a lower value of money and so a higher price level.DIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Money marketMSC:Analytical5.According to the classical dichotomy, what changes nominal variables? What changes real variables?ANS:The classical dichotomy argues that nominal variables
35、are determined primarily by developments in the monetary system such as changes in money demand and supply. Real variables are largely independent of the monetary system and are determined by productivity and real changes in the factor and loanable funds markets.DIF:1REF:30-1NAT:AnalyticLOC:The role
36、 of moneyTOP:Classical dichotomyMSC:Definitional6.Suppose that monetary neutrality holds. Of the following variables, which ones do not change when the money supply increases?a.real interest ratesb.inflationc.the price leveld.real outpute.real wagesf.nominal wagesANS:a.real interest ratesd.real outp
37、ute.real wagesDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Monetary neutralityMSC:Interpretive7.Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?ANS:Inflation has raised the general price level.
38、 An increase in the general price level has no effect on real variables in the long run. Wages are higher, but so are prices. Prices are higher, but so are wages and incomes. In the long run, people change their behavior in response to changes in real variables, not nominal ones.DIF:2REF:30-1NAT:Ana
39、lyticLOC:The role of moneyTOP:Nominal variables | Real variablesMSC:Interpretive8.Identify each of the following as nominal or real variables.a.the physical output of goods and servicesb.the overall price levelc.the dollar price of applesd.the price of apples relative to the price of orangese.the un
40、employment ratef.the amount that shows up on your paycheck after taxesg.the amount of goods you can purchase with the wage you get each hourh.the taxes that you pay the governmentANS:a.real variableb.nominal variablec.nominal variabled.real variablee.real variablef.nominal variableg.real variableh.n
41、ominal variableDIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Nominal variables | Real variablesMSC:Interpretive9.Define each of the symbols and explain the meaning of M V = P Y.ANS:M is the quantity of money, V is the velocity of money, P is the price level, and Y is the quantity of output. P Y
42、is nominal GDP. The amount people spend should equal the amount of money in the economy times the average number of times each unit of currency is spent.DIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:VelocityMSC:Definitional10.What assumptions are necessary to argue that the quantity equation imp
43、lies that increases in the money supply lead to proportional changes in the price level?ANS:We must suppose that V is relatively constant and that changes in the money supply have no effect on real output.DIF:2REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Quantity theoryMSC:Definitional11.What is the
44、 inflation tax, and how might it explain the creation of inflation by a central bank?ANS:The inflation tax refers to the fact that inflation is a tax on money. When prices rise, the value of money currently held is reduced. Hence, when a government raises revenue by printing money, it obtains resour
45、ces from households by taxing their money holdings through inflation rather than by sending them a tax bill. In countries where governments are unable or unwilling to raise revenues by raising taxes explicitly, the inflation tax may be an alternative source of revenue.DIF:1REF:30-1NAT:AnalyticLOC:The role of moneyTOP:Inflation taxMSC:Interpretive12.Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?ANS:Typically, the government in countries t
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