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### 57 Cards in this Set

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 What happens to money as the price level increases? The value of money falls. The velocity of money is: The rate at whcih money changes hands. According to monetary neutrality, a change in money supply will: Not affect real variables. A decrease in the price level indicates: That the economy has experienced deflation. According to the quantity equation, if the supply of money increases: The nominal value of output (P x Y) will increase. The government of Bunora prints money. Inflation and government revenues increase. This is an example of: An inflation tax Suppose the economy is initially in monetary equilibrium. The Federal Reserve then increases the money supply. As a result: The quantity of money demanded will be less than the quantity of money supplied, and the price level will increase. An analysis of countries experiencing rapid rates of inflation indicates that inflation generally the result of: Allowing the money supply to grow too rapidly. Suppose the nominal interest rate is 7%. The rate of inflation is 2%. The real interest rate is: 5% One of the main determinants of the quantity of money demanded is: THe price level The money supply in the U.S. economy is determined by: The Federal Reserve The equation of exchange states that: MV = PY The "shoeleather" costs of inflation refer to: The fact that people waste resources by trying to avoid inflation. According to the Fisher effect, an increase in the money supply will: Cause an increase in inflation and higher nominal interest rates. The fallacy committed by those who believe that each family is hurt financially when the inflation rate rises is the failure to realize that: When inflation goes up, family incomes rise. What does the quantity theory of money state? The price level varies in proportion to the money supply. One of the consequences of inflation is that it: Creates confusion and inconvenience resulting from changes in the unit of account. When the money supply increases, the value of money: Decreases What is the primary result of inflation? A decline in the value of money. The theoretical separation of nominal and real variables is known as: The classical dichotomy The relationship of the money demand curve to the value of money is shown by its: Downward slope The primary effect of an increase in the money supply would be: A proportional increase in prices. Given the quantity theory of money, if the quantity of money were doubled, then prices would: Double What does the demand curve for money show? The amount of money that individuals and businesses wish to hold at various price levels. If the monetary authorities continue over time to expand the supply of money more rapidly than real output, the result will be: Inflation The value of money is equal to: 1/P Suppose the rate of inflation is 2% and the real interest rate is 5%. The nominal interest rate will be: 7% What happens to money as the price level increases? The quantity of money demanded increases. When an economy experiences inflation, the quantity of money will: Increase, due to higher prices. The Fisher Effect suggests that: An increase in the money supply will increase nominal interest rates. The quantity of rice produced by a rice farmer is an example of: A real variable The quantity equation states that: Velocity is relatively stable over time. What causes debtors to benefit at the expense of creditors? Inflation The inflation tax refers to: The revenue the government raises by creating money. The cost of printing new price lists is an example of: Menu costs Fed action to increase the money supply will impact the economy by: Causing the public to spend excess cash balances they are holding. According to the quantity theory of money, the principal result of an increase in the supply of money is to: Increase the price level. One of the clear effects of inflation is that it: Makes markets less efficient by distorting relative prices and consumer decisions. Why isn't the money supply responsive to changes in the price level? Because it is fixed by the Federal Reserve. The value of money will decrease during: Periods of inflation In 1997, GDP was equal to \$5,463 billion while the M1 money supply was \$826 billion. What was the velocity of money? 6.6 An analysis of countries experiencing rapid rates of inflation indicates that inflation is generally caused by: Excessive growth in the money supply. Carrie withdraws money from the bank everyday rather than once a week. What is this an example of? The "shoeleather" costs of inflation. Shows the amount of money that individuals and businesses wish to hold at various price levels: The demand curve for money The theoretical separation of nominal and real variables: classical dichotomy The one-for-one adjustment of the nominal interest rate to the inflation rate: Fisher effect The costs of changing prices: menu costs Asserts that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate: quantity theory of money The revenue the government raises by creating money: inflation tax Variables measured in monetary units: nominal variables The equation M x V = P x Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy’s output of goods and services: quantity equation The resources that are wasted when inflation encourages people to reduce their money holdings: shoeleather costs Variables measured in physical units: real variables The proposition that changes in the money supply do not affect real variables: monetary neutrality When the Fed adds more money to the economy, the Money Supply curve shifts to the ________, causing the equilibrium price level to ________. right, increase If the Fed increased the supply of money, and velocity remains unchanged, according to the quantity equation: P x Y must increase When inflation turns out to be higher than expected, borrowers will be ________ off, and lenders will be ________ off. better, worse