Econ Ch 14

Front 1

Which of the following statements is true?

Back 1

Monetarists believe that control of the money supply is very important to the health of the economy.

Front 2

In the equation of exchange, "Q" stands for

Back 2

Real GDP.

Front 3

The simple quantity theory of money predicts that changes in

Back 3

the money supply lead to strictly proportional changes in the price level.

Front 4

The simple quantity theory of money predicts that if

Back 4

the money supply rises by 10 percent, then the price level rises by 10 percent.

Front 5

If M = $400, P = $10, and Q = 300, then V is

Back 5

7.5

Front 6

If GDP is $12,000 and velocity is 4, the money supply is

Back 6

d. $3,000.

Front 7

Suppose the economy starts off producing Natural Real GDP. Next, aggregate demand rises, ceteris paribus. As a result, the price level rises in the short run. In the long run, when the economy has moved back to producing Natural Real GDP, the price level will be

Back 7

higher than it was in short-run equilibrium.

Front 8

Monetarists believe

Back 8

Real GDP is not determined by M in the long run.

Front 9

Refer to Exhibit 14-1. Starting from point A, a one shot, supply-side-induced inflation raises the price level in the economy to P2. Assuming no other changes, the economy is likely to settle at point

Back 9

A

Front 10

Refer to Exhibit 14-1. A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?

Back 10

A-E-B-I-C

Front 11

Refer to Exhibit 14-1. A continued increase in the price of oil, combined with Fed attempts to respond to these oil shocks by increasing aggregate demand, is likely to take the economy along which of the following paths?

Back 11

A-D-B-H-C

Front 12

Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a rise in velocity under monetarist assumptions?

Back 12

A-E-B

Front 13

Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a fall in the money supply under monetarist assumptions?

Back 13

B-D-A

Front 14

Refer to Exhibit 14-1. What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

Back 14

A-E-B

Front 15

According to the simple quantity theory of money in the AD-AS framework, when the money supply falls, the result is __________ in Real GDP and __________ in the price level.

Back 15

no change; a fall

Front 16

According to the simple quantity theory of money, an increase in the money supply will shift the __________ curve to the right and raise __________.

Back 16

AD; the price level

Front 17

When the Fed conducts open market operations, the impact of the buying or selling of bonds will include changes in

Back 17

interest rates.

Front 18

If in a hypothetical economy the money supply is $4,000, velocity is 3, and Real GDP is 6,000 units of output, then the price level is _____________. If the money supply doubled over a short time period to $8,000, the simple quantity theory of money would predict that

Back 18

$2; the price level would double to $4.

Front 19

Based upon the equation of exchange, which of the following (ceteris paribus) is most likely to bring about inflation?

Back 19

An increase in the money supply.

Front 20

Monetarists can be described as a group of macroeconomists who

Back 20

emphasize the importance of the money supply as a determinant of macroeconomic activity.

Front 21

Which of the following statements is true?

Back 21

GDP is larger than the money supply if velocity is greater than 1.

Front 22

In the equation of exchange, the letter "V" stands for

Back 22

velocity.

Front 23

In the equation of exchange, the money supply multiplied by velocity equals

Back 23

GDP

Front 24

In the equation of exchange, GDP divided by the money supply is equal to

Back 24

V

Front 25

In the equation of exchange, "PQ" stands for

Back 25

GDP

Front 26

The velocity of money is the __________ number of times a dollar is spent to buy final goods and services in a year.

Back 26

average

Front 27

The simple quantity theory of money assumes that

Back 27

velocity and Real GDP are constant.

Front 28

In symbols, the equation of exchange says

Back 28

MV = PQ.

Front 29

The simple quantity theory of money predicts that an increase in M of 5 percent will lead to

Back 29

an increase in P of 5 percent.

Front 30

If Real GDP is $5,000, the money supply is $3,200, and velocity is 3, then the price level is

Back 30

1.92

Front 31

According to the equation of exchange, if GDP equals $4 trillion and the money supply equals $0.5 trillion, the velocity of money

Back 31

must be 8

Front 32

Suppose the economy starts off producing Natural Real GDP. Next, aggregate supply rises, ceteris paribus. As a result, the price level falls in the short run. In the long run, when the economy has moved back to producing Natural Real GDP, the price level will be

Back 32

equal to what it was originally (before aggregate supply rose).

Front 33

Which of the following statements is true?

Back 33

Nominal interest rate = real interest rate + expected inflation rate.

Front 34

Monetarists believe that

Back 34

a and c

Front 35

Ceteris paribus, the greater the increases in the money supply, the __________ the inflation rate, the __________ the expected inflation rate, and the __________ the nominal interest rate.

Back 35

higher; higher; higher

Front 36

According to the simple quantity theory of money in the AD-AS framework, when the money supply rises, the result is __________ in Real GDP and __________ in the price level.

Back 36

no change; a rise

Front 37

If GDP is $7,500 billion and the money supply is $1,250 billion, velocity is approximately

Back 37

6.00

Front 38

If the simple quantity theory of money predicts well, what would we expect to see (in the real world)?

Back 38

changes in the money supply strongly correlated with changes in inflation rates