Macroeconomics 102 Chapter 17

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Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

a. neither the nominal nor the real interest rate fall.
b. both the nominal and the real interest rate fall.
c. the real interest rate falls, but the nominal interest rate does not.
d. the nominal interest rate falls, but the real interest rate does not.

d. the nominal interest rate falls, but the real interest rate does not.

According to the classical dichotomy, which of the following is not influenced by monetary factors?

a. real GDP
b. the price level
c. nominal interest rates
d. All of the above are correct.

a. real GDP

Most economists believe the principle of monetary neutrality is

a. mostly relevant to the short run.
b. irrelevant to both the short and long run.
c. mostly relevant to the long run.
d. relevant to both the short and long run.

c. mostly relevant to the long run.

The principle of monetary neutrality implies that an increase in the money supply will

a. increase real GDP and the price level.
b. increase the price level, but not real GDP.
c. increase real GDP, but not the price level.
d. increase neither the price level nor real GDP.

b. increase the price level, but not real GDP.

When inflation falls, people

a. make more frequent trips to the bank while firms make less frequent price changes.
b. make more frequent trips to the bank and firms make more frequent price changes.
c. make less frequent trips to the bank while firms make more frequent price changes.
d. make less frequent trips to the bank and firms make less frequent price changes.

d. make less frequent trips to the bank and firms make less frequent price changes.

Which of the following is correct?

a. If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right.
b. If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
c. If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
d. If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right.

c. If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.

If the Fed increases the money supply, then 1/P

a. falls, so the value of money rises.
b. falls, so the value of money falls.
c. rises, so the value of money rises.
d. rises, so the value of money falls.

b. falls, so the value of money falls.

The value of money falls as the price level

a. falls, because the number of dollars needed to buy a representative basket of goods rises.
b. falls, because the number of dollars needed to buy a representative basket of goods falls.
c. rises, because the number of dollars needed to buy a representative basket of goods rises.
d. rises, because the number of dollars needed to buy a representative basket of goods falls.

c. rises, because the number of dollars needed to buy a representative basket of goods rises.

If the CPI rises, the number of dollars needed to buy a representative basket of goods

a. decreases, and so the value of money falls
b. decreases, and so the value of money rises.
c. increases, and so the value of money falls.
d. increases, and so the value of money rises.

c. increases, and so the value of money falls.

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

a. the upward trend in real GDP but not the upward trend in the price level
b. both the upward trend in real GDP and the upward trend in the price level
c. the upward trend in the price level but not the upward trend in real GDP
d. neither the upward trend in the price level nor the upward trend in real GDP

c. the upward trend in the price level but not the upward trend in real GDP

The money supply curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

True or false?

a. true

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

true or false?

b. false

When the money market is drawn with the value of money on the vertical axis, the price level increases if

a. money demand shifts left and decreases if money supply shifts left.
b. money demand shifts left and decreases if money supply shifts right.
c. money demand shifts right and decreases if money supply shifts left.
d. money demand shifts right and decreases if money supply shifts right.

a. money demand shifts left and decreases if money supply shifts left.

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

a. both the price level and nominal output.
b. the price level only.
c. nominal output only.
d. real output only

a. both the price level and nominal output.

According to the principle of monetary neutrality, a decrease in the money supply will not change

a. unemployment.
b. nominal GDP.
c. the price level.
d. All of the above are correc

a. unemployment.

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

a. Inflation is 3 percent; the tax rate is 20 percent.
b. Inflation is 1 percent; the tax rate is 60 percent.
c. Inflation is 2 percent; the tax rate is 40 percent.
d. The after-tax real interest rate is the same for all of the above

d. The after-tax real interest rate is the same for all of the above

When the money market is drawn with the value of money on the vertical axis, the price level increases if

a. money demand shifts right or money supply shifts left.
b. money demand shifts left or money supply shifts right.
c. either money demand or money supply shifts left.
d. either money demand or money supply shifts right.

b. money demand shifts left or money supply shifts right.

High and unexpected inflation has a greater cost

a. for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
b. for those who hold a little money than for those who hold a lot of money.
c. for savers in low income tax brackets than for savers in high income tax brackets.
d. for those who save than for those who borrow

d. for those who save than for those who borrow

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