Deck 14: Wages,union,and Labor

Question 1

In the simple quantity theory of money,Real GDP and velocity are assumed to be constant.

Answer 1

True

Question 2

The California gold rush resulted in an increase in the amount of money in circulation and an increase in prices across the country.

Answer 2

True

Question 3

In the simple quantity theory of money,the price level is assumed to be constant.

Answer 3

False

Question 4

One-shot inflation is always caused by a decrease in short-run aggregate supply.

Question 5

One-shot inflation can result from an increase in aggregate demand or an increase in aggregate supply.

Question 6

The true cost of borrowing is the nominal interest rate.

Question 7

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Question 8

In seeking to explain what determines GDP,monetarists focus on the money supply while Keynesians focus on the spending components of total expenditures.

Question 9

A change in the money supply or a change in velocity will change aggregate demand,which causes the aggregate demand curve to shift.

Question 10

The equation of exchange is an economic theory.

Question 11

Both the monetarist view of the economy and the simple quantity theory of money hold that velocity is constant.

Question 12

The liquidity,income,price-level,and expectations effects help to explain how changes in the money supply can affect the interest rate.

Question 13

The aggregate supply curve is depicted as vertical in the simple quantity theory of money.

Question 14

An increase in the expected inflation rate results in an increase in the real interest rate.

Question 15

Real estate in San Francisco that sold for $16 before gold was discovered in California was valued at $4,500 eighteen months later,as a result of the gold rush.

Question 16

One example of one-shot inflation occurs when the SRAS curve shifts leftward.

Question 17

Between 1890 and 1914,the gold stock of the world doubled,but world prices fell during this time.

Question 18

Continued inflation is caused by continued increases in aggregate demand resulting from continued increases in the money supply.

Question 19

Monetarists believe that an increase in the money supply will raise both Real GDP and the price level in the short run,and will only raise Real GDP in the long run.

Question 20

The simple quantity theory of money predicts that the larger the percentage change in the money supply,the larger the percentage change in Real GDP.

Question 21

Which of the following statements is true?

A) Monetarists believe that the government should be very involved in managing and directing the economy.
B) Monetarists believe that the economy is self-regulating.
C) There is very little difference between monetarist and Keynesian thought.
D) Monetarists hold that velocity is constant.
E) a and c

Question 22

In the equation of exchange,"Q" stands for

A) the interest rate.
B) quality.
C) GDP.
D) Real GDP.

Question 23

The equation of exchange is

A) an identity.
B) a theory.
C) an abstraction
D) a hypothesis.
E) a,b,and c

Question 24

In order to turn the equation of exchange into a theory,assumptions must be made about the variables contained in the equation of exchange.

Question 25

In symbols,the equation of exchange says

A) MP = QV.
B) MQ = PV.
C) MV = PQ.
D) MP = MQ.

Question 26

The simple quantity theory of money assumes that

A) velocity and Real GDP are constant.
B) only velocity is constant.
C) only the money supply is constant.
D) only the price level is constant.

Question 27

Which of the following statements is true?

A) Velocity equals the money supply.
B) GDP is larger than the money supply if velocity is greater than 1.
C) The money supply must be equal to GDP.
D) GDP is always twice the money supply.

Question 28

The simple quantity theory of money predicts that if

A) the money supply rises by $200,then GDP falls by $200.
B) GDP rises by $400,then the money supply rises by $400.
C) the money supply rises by 10 percent,then the price level rises by 10 percent.
D) the money supply falls by $300,then GDP rises by $300.

Question 29

One of the positions held by monetarists is that prices and wages are flexible.

Question 30

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

A) total
B) average
C) marginal
D) statistical

Question 31

The simple quantity theory of money predicts that changes in

A) the money supply lead to strictly proportional changes in the price level.
B) the money supply do not affect the price level.
C) the price level lead to strictly proportional changes in velocity and GDP.
D) velocity lead to nearly proportional changes in the money supply.

Question 32

In the equation of exchange,the average number of times a dollar is used to purchase a final good or service is the __________ of money.

A) turnover
B) elasticity
C) velocity
D) transfer

Question 33

A change in the interest rate resulting from a change in the supply of loanable funds is called the expectations effect.

Question 34

Monetarists can be described as a group of macroeconomists who

A) emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle.
B) emphasize the importance of the money supply as a determinant of macroeconomic activity.
C) tend to view government spending and taxation policy as the chief means of stabilizing the economy.
D) feel that money should not be created in the private banking system,but only by government.

Question 35

According to monetarists,an increase in the money supply will raise Real GDP in the long run,but not in the short run.

Question 36

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

A) M.
B) V.
C) P.
D) Q.

Question 37

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

A) variance.
B) validity.
C) volume.
D) velocity.

Question 38

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

A) GDP.
B) the price level.
C) the quantity of goods produced.
D) the average number of times that a dollar is used to purchase a final good or service.

Question 39

In the equation of exchange,"PQ" stands for

A) GDP.
B) Real GDP.
C) nominal investment.
D) real investment.

Question 40

In a country in which the government uses price controls to attempt to control inflation,nonmoney rationing devices will be needed to resolve shortages.

Question 41

Velocity equals GDP __________ the money supply.

A) plus
B) multiplied by
C) divided by
D) minus

Question 42

If GDP is $36,000 and velocity is 3,the money supply is

A) $27,000.
B) $12,000.
C) $4,000.
D) $3,000.
E) There is not enough information provided to answer this question.

Question 43

MV in the equation of exchange is also defined as

A) national income.
B) total expenditures.
C) personal income.
D) Real GDP.

Question 44

If V is constant,the rate of growth of M that is consistent with a stable price level is

A) zero.
B) the rate of growth of PQ.
C) the rate of growth of Q.
D) the expected rate of inflation.
E) none of the above

Question 45

Can a one-time increase in the supply of money cause one-shot inflation?

A) Yes,because it shifts the aggregate demand curve rightward.
B) No,because it cannot shift the aggregate demand curve rightward.
C) Yes,because it shifts the aggregate demand curve leftward.
D) Yes,because it shifts the aggregate supply curve rightward.

Question 46

The chief difference between one-shot inflation and continued inflation is that

A) Keynesians believe all inflations are one-shot inflations and monetarists believe all inflations are continued inflations.
B) one-shot inflation is long and continued inflation is short.
C) one-shot inflation is a single increase in the price level and continued inflation is a sustained increase in the price level.
D) monetarists believe all inflations are one-shot inflations and Keynesians believe all inflations are continued inflations.

Question 47

Which of the following is consistent with the equation of exchange?

A) Total spending must equal the total sales revenues of business firms.
B) The money supply multiplied by velocity must equal GDP.
C) The money supply multiplied by velocity must equal the price level times Real GDP.
D) a and b
E) a,b and c

Question 48

If M = $6,000,P = $10,and Q = 2,400,then V is

A) 2.0.
B) 4.0.
C) 5.0
D) 6.0
E) 8.0

Question 49

The equation of exchange

A) is a theory of the macroeconomy as it stands.
B) can be turned into a theory of the macroeconomy if certain assumptions are made about some of its variables.
C) cannot be turned into a theory of the macroeconomy.
D) is a theory in microeconomics as it stands.

Question 50

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

A) higher than it was in short-run equilibrium.
B) lower than it was in short-run equilibrium but higher than it was originally (before aggregate supply rose).
C) lower than it was originally (before aggregate supply rose).
D) equal to what it was originally (before aggregate supply rose).

Question 51

One-shot inflation can originate

A) only on the demand side of the economy.
B) only on the supply side of the economy.
C) on the demand side or the supply side of the economy.
D) on neither the demand side nor the supply side of the economy.

Question 52

If the money supply is $700,velocity is 5,then in the equation of exchange,PQ is

A) $705.
B) $140.
C) $1,400.
D) $3,500.
E) $350.

Question 53

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

A) higher than it was in short-run equilibrium.
B) lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased).
C) lower than it was originally (before aggregate demand increased).
D) equal to what it was originally (before aggregate demand increased).

Question 54

If Real GDP is $900,the money supply is $1,350,and the price level is 6,then velocity is

A) 2.00.
B) 3.33.
C) 4.00.
D) 7.50.
E) none of the above

Question 55

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

A) an increase in P of 5 percent.
B) an increase in P of less than 5 percent.
C) an increase in P of more than 5 percent.
D) a decrease in P of 5 percent.
E) a decrease in P of more than 5 percent.

Question 56

According to the equation of exchange,if GDP equals $2.5 trillion and the money supply equals $1 trillion,the velocity of money

A) must be 2.5.
B) must be 4.
C) must be 0.25 trillion.
D) must be 4 trillion.
E) cannot be determined without knowing what the price level is.

Question 57

According to the equation of exchange,if Real GDP is $3 trillion and the money supply is $0.5 trillion,then velocity

A) must be 6.
B) must be 1/6.
C) must be 4 trillion.
D) must be 1/4 trillion.
E) cannot be determined without knowing what the price level is.

Question 58

"The money supply multiplied by velocity must equal GDP" is a statement of the

A) simple quantity theory of money.
B) equation of exchange.
C) modern quantity theory of money.
D) all of the above

Question 59

If Real GDP is $9,000,the money supply is $12,000,and velocity is 3,then the price level is

A) 2.5.
B) 3.
C) 4.
D) 3.33.

Question 60

The simple quantity theory of money can be written as

A) P = MV/Q.
B) MV = Q/P.
C) PM = VQ.
D) Q = PMV.
E) all of the above

Question 61

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

A) higher; higher; higher
B) lower; lower; lower
C) higher; lower; higher
D) lower; higher; lower
E) higher; lower; lower

Question 62

Which of the following statements is true?

A) Nominal interest rate = real interest rate - expected inflation rate.
B) Nominal interest rate = real interest rate + expected inflation rate.
C) Real interest rate = nominal interest rate + expected inflation rate.
D) Expected inflation rate = nominal interest rate + real interest rate.
E) Expected inflation rate = real interest rate - nominal interest rate.

Question 63

Grade inflation at colleges and universities is _________ to general price inflation in that ______________.

A) similar; both can be deceptive.
B) not comparable; it is impossible for grades to be inflated.
C) similar; grades tend to go up when prices are rising.
D) not comparable; grades tend to fall while prices tend to rise.

Question 64

Continued inflation occurs

A) if there is a sustained increase in the price level.
B) only if there is a sustained increase in the price of every good and service.
C) only if there is a sustained increase in the price of every good and service by the same dollar amount.
D) only if there is a sustained increase in the price of every good and service by the same percentage.

Question 65

When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was referring to

A) one-shot inflation.
B) continued inflation.
C) a and b
D) neither a nor b

Question 66

Monetarists believe

A) Real GDP is not determined by M in the long run.
B) velocity is constant.
C) the SRAS curve is vertical.
D) a and c
E) a,b and c

Question 67

Real-world continued inflation is probably a result of continued

A) increases in aggregate demand.
B) decreases in aggregate demand.
C) increases in aggregate supply.
D) decreases in aggregate supply.

Question 68

Some economists argue that increases in government spending are not a likely source of continued inflation because

A) increases in government spending cause reductions in other spending components.
B) government spending is not created by the Fed.
C) increases in government spending can be financed by money creation.
D) a and b
E) a and c

Question 69

An increase in the money supply that leads to an increase in expected inflation,which in turn leads to an increase in the interest rate,is best described as the

A) liquidity effect.
B) income effect.
C) expectations effect.
D) adaptive expectations theory.

Question 70

The liquidity effect is the

A) increase in the interest rate brought on by an increase in GDP.
B) increase in the interest rate due to a higher expected inflation rate.
C) decrease in the interest rate due to an increase in the supply of loanable funds.
D) response,in terms of rate of flow,of the money supply to a change in government spending.
E) rate of change in the price level caused by a change in the supply of money.

Question 71

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

A) income
B) expectations
C) liquidity
D) real

Question 72

The change in the interest rate brought on by a change in Real GDP is referred to as the __________ effect.

A) liquidity
B) expectations
C) income
D) nominal

Question 73

The expectations effect is the

A) increase in the interest rate brought on by an expected increase in Real GDP.
B) increase in the interest rate due to a higher expected inflation rate.
C) decrease in the interest rate due to an expected increase in the supply of loanable funds.
D) idea that people form their expectations of inflation by considering all available information about past,present,and future inflation.
E) idea that people form their expectations of inflation by considering only information about past inflation experience.

Question 74

Monetarists believe that

A) velocity changes in a predictable way.
B) aggregate supply depends on the money supply and velocity.
C) the SRAS curve is upward sloping.
D) a and c
E) a,b and c

Question 75

The California gold rush resulted in

A) an increase in the amount of money in circulation and higher prices throughout the country.
B) no change in the amount of money in circulation and higher prices throughout the country.
C) an increase in the amount of money in circulation and higher prices only in California.
D) no change in the amount of money in circulation and higher prices only in California.

Question 76

Between 1890 and 1914,the gold stock of the world _______________ and world prices (in general)

A) doubled; increased.
B) tripled; increased.
C) rose by 50%; increased.
D) doubled; decreased.
E) tripled; decreased.

Question 77

Suppose the Fed buys government securities from the public.The liquidity effect of this is that the interest rate will

A) increase.
B) decrease.
C) remain constant.
D) any of the above are possible

Question 78

A monetarist would argue that

A) small changes in M could be offset by changes in V and not cause changes in P.
B) changes in M in the short run can cause Real GDP to fall.
C) prices and wages are flexible.
D) b and c
E) a,b and c

Question 79

The income effect is the

A) increase in the interest rate caused by an increase in Real GDP.
B) increase in the interest rate due to a higher expected inflation rate.
C) decrease in the interest rate due to an increase in the supply of loanable funds.
D) change in national income brought about by a change in interest rates.
E) rate of change in national income brought about by a change in the supply of money.

Question 80

According to monetarists,changes in velocity can

A) lower GDP
B) raise GDP
C) shift the SRAS,but not the LRAS
D) a and b
E) a,b and c