Deck 30: True False

Question 1

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

Answer 1

True

Question 2

As the price level falls,the value of money falls.

Answer 2

False

Question 3

An excess supply of money is eliminated by a decrease in the value of money.

Answer 3

True

Question 4

If the quantity of money demanded is greater than the quantity supplied,then the value of money rises.

Question 5

The quantity theory of money can explain hyperinflations but not moderate inflation.

Question 6

An excess supply of money is eliminated by a falling price level

Question 7

The money demand curve shifts to the left when the Fed buys government bonds.

Question 8

In United States history there were long periods when most prices fell.

Question 9

If money demand shifts right,the price level falls.

Question 10

U.S.prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Question 11

When the value of money is on the vertical axis,the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Question 12

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Question 13

The inflation rate is measured as the percentage change in a price index.

Question 14

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Question 15

The price level is determined by the supply of,and demand for,money.

Question 16

When the value of money is on the vertical axis,the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Question 17

An increase in money demand would create a surplus of money at the original value of money.

Question 18

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Question 19

If the quantity of money supplied is greater than the quantity demanded,then prices should fall.

Question 20

The United States has never had deflation.

Question 21

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

Question 22

Nominal GDP measures output of final goods and services in physical terms.

Question 23

Monetary neutrality means that while real variables may change in response to changes in the money supply,nominal variables do not.

Question 24

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Question 25

If the money supply increased by 10% and at the same time velocity decreased by 10%,then according to the quantity equation there would be no change in the price level.

Question 26

The irrelevance of monetary changes for real variables is called monetary neutrality.Most economists accept monetary neutrality as a good description of the economy in the long run,but not the short run.

Question 27

If the real interest rate is 5% and the inflation rate is 3%,then the nominal interest rate is 8%.

Question 28

Real GDP measures output of final goods and services in physical units.

Question 29

The quantity equation is M x V = P x Y.

Question 30

In the long run,an increase in the growth rate of the money supply leads to an increase in the real interest rate,but no change in the nominal interest rate.

Question 31

One study found that unemployment is the economic term mentioned most often in U.S.newspapers.

Question 32

If the Fed increases the money supply,the equilibrium value of money decreases and the equilibrium price level increases.

Question 33

The source of all four classic hyperinflations was high rates of money growth.

Question 34

Dollar prices and relative prices are both nominal variables.

Question 35

Inflation induces people to spend more resources maintaining lower money holdings.The costs of doing this are called shoeleather costs.

Question 36

The quantity theory of money implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Question 37

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Question 38

If the Fed conducts open market sales,the equilibrium value of money decreases and the equilibrium price level increases.

Question 39

Hyperinflations are associated with governments printing money to finance expenditures.

Question 40

For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.

Question 41

Suppose the nominal interest rate is 10 percent,the tax rate on interest income is 28 percent,and the inflation rate is 6 percent.Then the after-tax real interest rate is -3.2 percent.

Question 42

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Question 43

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.

Question 44

When the Fed increases the money supply and creates inflation,it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

Question 45

Inflation is costly only if it is unanticipated.

Question 46

A person received 4% nominal interest.The inflation rate was -2% and the tax rate was 25%.This person received an after-tax real interest rate of 5%.

Question 47

If inflation is higher than expected,then lenders receive interest payments whose real values are less than they expected.

Question 48

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Question 49

The story The Wizard of Oz can be interpreted as an allegory about U.S.monetary policy in the late 19th century.

Question 50

If inflation is higher than expected,then borrowers make nominal interest payments that are less than they expected.

Question 51

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 0.8 percent.Then the inflation rate is 2.7 percent.

Question 52

Shoeleather costs and menu costs are both costs of anticipated inflation.

Question 53

Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.

Question 54

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Question 55

Jimmy Carter,Ronald Reagan,and Gerald Ford are all U.S.presidents whose political careers were helped by inflation.

Question 56

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Question 57

The hyperinflation in Zimbabwe ended in April 2009 when the central bank purchased government bonds in open-market operations.

Question 58

If the Fed were to unexpectedly increase the money supply,creditors would gain at the expense of debtors.

Question 59

In the presence of inflation in the U.S. ,accountants incorrectly measure firms' earnings but the tax code correctly measures real incomes.

Question 60

Unexpected and large deflation is desirable,according to the Friedman rule.