chapter 12 practice problem with answer.pdf

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Winter

Description
Name: ________________________ Class: ___________________ Date: __________ ID: A Problem Set 12 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change in the price of a specific commodity. ____ 2. When prices are falling, economists say that there is a. disinflation. b. deflation. c. a contraction. d. an inverted inflation. ____ 3. When the price level falls, the number of dollars needed to buy a representative basket of goods a. increases, so the value of money rises. b. increases, so the value of money falls. c. decreases, so the value of money rises. d. decreases, so the value of money falls. ____ 4. When the value of money rises, the number of dollars needed to buy a representative basket of goods a. increases, and so the price level rises. b. increases, and so the price level falls. c. decreases, and so the price level rises. d. decreases, and so the price level falls. ____ 5. When the number of dollars needed to buy a representative basket of goods falls, the value of money a. rises, and so the price level rises. b. rises, and so the price level falls. c. falls, and so the price level rises. d. falls, and so the price level falls. ____ 6. The supply curve of money is vertical because the quantity of money supplied increases a. when the value of money increases. b. when the value of money decreases. c. only if people desire to hold more money. d. only if the central bank increases the money supply. ____ 7. The supply of money is determined by a. the price level. b. the Treasury and Congressional Budget Office. c. the Federal Reserve System. d. the demand for money. ____ 8. When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes a. upward because at higher prices people want to hold more money. b. downward because at higher prices people want to hold more money. c. downward because at higher price people want to hold less money. d. upward, because at higher prices people want to hold less money. 1 Name: ________________________ ID: A ____ 9. Which of the following is correct? a. If the Fed purchases bonds in the open market, then the money supply shifts right. A change in the price level does not shift money supply. b. If the Fed sells bonds in the open market, then money supply shifts right. A change in the price level does not shift money supply. c. If the Fed purchases bonds, then the money supply shifts right. An increase in the price level shifts money supply right. d. If the Fed purchases bonds, then the money supply shifts right. A decrease in the price level shifts money supply right. ____ 10. In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. The central banks might have done this by a. selling bonds on the open market, which would have raised the value of money. b. purchasing bonds on the open market, which would have raised the value of money. c. selling bonds on the open market, which would have raised the value of money. d. purchasing bonds on the open market, which would have lowered the value of money. ____ 11. A decrease in the money supply creates an excess a. supply of money that is eliminated by rising prices. b. supply of money that is eliminated by falling prices. c. demand for money that is eliminated by rising prices. d. demand for money that is eliminated by falling prices. ____ 12. 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, a. the price level will rise. b. the value of money will rise. c. money demand will shift left. d. money demand will shift right. ____ 13. When the money market is drawn with the value of money on the vertical axis, which of the following would shift money demand right? a. an increase in the price level b. a decrease in the price level c. open-market purchases by the central bank d. None of the above is correct. Use the figure below for the following questions. Figure 17-1 ____ 14. Refer to Figure 17-1. If the money supply is MS and the2value of money is 2, a. the value of money is less than its equilibrium level. b. the price level is higher than its equilibrium level. c. money demand is greater than the money supply. d. the money supply is greater than money demand. 2 Name: ________________________ ID: A ____ 15. Refer to Figure 17-1. When the money supply curve shifts from MS to MS , 1 2 a. the equilibrium value of money decreases. b. the equilibrium price level decreases. c. the supply of money has decreased. d. the demand for goods and services will decrease. ____ 16. Economic variables whose values are measured in monetary units are called a. dichotomous variables. b. nominal variables. c. classical variables. d. real variables. ____ 17. Real GDP measures a. the total quantity of final goods and services produced. b. the dollar value of the economy's output of final goods and services. c. the total income received from producing final goods and services at current prices. d. All of the above are correct. ____ 18. The price level is a a. relative variable. b. actual variable. c. real variable. d. nominal variable. ____ 19. The price of a Honda Accord divided by the price of a Honda Civic is a a. classical variable. b. dichotomous variable. c. nominal variable. d. real variable. ____ 20. An assistant professor of economics gets a $100 a month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. a. Her real and nominal salary have risen. b. Her real and nominal wage have fallen. c. Her real wage has risen and her nominal wage has fallen. d. Her real wage has fallen and her nominal wage has risen. ____ 21. Interest rates adjusted for the effects of inflation are a. nominal variables. b. real variables. c. classical variables. d. dichotomous variables. ____ 22. The classical dichotomy refers to the idea that the supply of money a. is irrelevant for understanding the determinants of nominal and real variables. b. determines nominal variables, but not real variables. c. determines real variables, but not nominal variables. d. is a determinant of both real and nominal variables. ____ 23. According to the classical dichotomy, which of the following is not influenced by monetary factors? a. nominal GDP and nominal interest rates b. real wages and real GDP c. the price level and nominal GDP d. None of the above are correct. ____ 24. According to the classical dichotomy, when the money supply doubles, which of the following also double? a. the price level and nominal wages b. the price level, but not the nominal wage c. the nominal wage, but not the price level d. neither the nominal wage nor the price level 3 Name: ________________________ ID: A ____ 25. The principle of monetary neutrality implies that an increase in the money supply will a. increase real GDP and the price level. b. increase real GDP, but not the price level. c. increase the price level, but not real GDP. d. increase neither the price level nor real GDP. ____ 26. Monetary neutrality implies that an increase in the quantity of money will a. increase employment. b. increase the price level. c. increase the incentive to save. d. not affect the price level. ____ 27. Most economists believe the principle of monetary neutrality is a. relevant to both the short and long run. b. irrelevant to both the short and long run. c. mostly relevant to the short run. d. mostly relevant to the long run. ____ 28. The velocity of money is a. the rate at which the Fed puts money into the economy. b. the same thing as the long-term growth rate of the money supply. c. the money supply divided by nominal GDP. d. the average number of times per year a dollar is spent. ____ 29. Last year, Tealandia produced 50,000 bags of green tea, which sold at 4 units each of Tealandia's currency-the Leaf. Tealandia's money supply was 10,000. What was the velocity of money in Tealandia? a. 20 b. 5 c. 1/20 d. 1/5 ____ 30. If V and M are constant, and Y doubles, the quantity equation implies that the price level a. falls to half its original level. b. does not change. c. doubles. d. more than doubles. ____ 31. If velocity and output were nearly constant, a. the inflation rate would be much higher than the money supply growth rate. b. the inflation rate would be about the same as the money supply growth rate. c. the inflation rate would be much lower than the money supply growth rate. d. any of the above would be possible. ____ 32. The money supply in Freedonia is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Freedonia? a. Velocity is 2 and the price level is 1. b. Velocity is 4 and the price level is 8. c. Velocity is 8 and the price level is 4. d. There is insufficient information to answer the question. ____ 33. The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Freedonia has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 10 percent this year, how will the central bank of Freedonia change the money supply this year? a. It will not change the money supply at all. b. It will reduce t
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