Question 1

What are the implications of the quantity theory of money for monetary policy and price stability?

Accepted Answer

The answer of What are the implications of the quantity...

Question 2

According to the quantity theory of money,if the money supply grows at 6%,real GDP grows at 2%,and the velocity of money is constant,then the inflation rate will be

Accepted Answer

The quantity theory of money is represented by the equation MV = PQ, where M is the money supply, V is the velocity of money (assumed constant in this scenario), P is the price level, and Q is the real GDP. If the money supply grows by 6% and real GDP grows by 2%, with the velocity of money constant, the difference (6% - 2%) results in a 4% inflation rate.

Question 3

How is the quantity theory of money different from the quantity equation and why must the quantity equation always be true?

Accepted Answer

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Question 4

Hyperinflations occur because governments want to spend more than they raise in taxes,and they pay for the extra purchases by printing money or selling large quantities of government bonds to the central bank.

Accepted Answer

Hyperinflations occur when governments print more money or sell large quantities of government bonds to the central bank to finance their expenses, leading to a rapid decrease in the value of the currency and significant inflation.

Question 5

In countries that have experienced hyperinflation,what role have large government budget deficits played in causing the very high inflation rates?

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Question 6

When a government has a budget deficit,it must issue (sell)government bonds to finance the deficit.Does it matter for the rate of inflation if the government sells the government bonds to the public or sells the government bonds to the central bank? Explain why it does or does not matter.

Accepted Answer

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Question 7

If the rate of growth in real GDP exceeds the rate of growth in the money supply,the quantity theory of money predicts a price deflation.

Accepted Answer

According to the quantity theory of money, prices are directly proportional to the money supply and inversely proportional to real GDP. Therefore, if real GDP growth exceeds the growth in the money supply, the result would be a decrease in prices, or price deflation.

Question 8

Which of the following is not one of the ways that the German government ended the hyperinflation of the 1920s?

Accepted Answer

The German government did not specifically address hyperinflation by raising the required reserve ratio to reduce bank loans. The primary measures included negotiating the Dawes Plan to restructure reparations, fiscal consolidation, and introducing a new currency (the Rentenmark, later the Reichsmark) to stabilize the economy.

Question 9

In 2008,Zimbabwe ran out of locally produced Coca Cola and local Coke bottlers were not able to import the concentrated syrup needed to make Coke from the United States because they could not obtain U.S.dollars.A small amount of Coke was imported from South Africa,but a single bottle sold for around 15 billion Zimbabwean dollars.Zimbabwe was experiencing rapid increases in the price level,which is known as

Accepted Answer

The rapid increases in price levels that Zimbabwe was experiencing are characteristic of hyperinflation - a situation where prices increase extremely quickly, often doubling or tripling in a matter of weeks or months. This is often caused by a rapid increase in the money supply, which can be caused by factors such as excessive government spending or an extremely loose monetary policy. In Zimbabwe's case, the government had been printing money to finance its expenditures, which led to a hyperinflationary spiral that ultimately rendered its currency virtually worthless.

Question 10

Hyperinflation is caused by

Accepted Answer

Hyperinflation is caused by a high rate of growth in the money supply, where there is too much money in circulation and not enough goods and services to purchase with that money. This results in a rapid increase in prices, which can spiral out of control if not addressed.

Question 11

The quantity theory of money implies that the price level will be stable (no inflation or deflation)when the growth rate of the money supply equals

Accepted Answer

The quantity theory of money, often represented by the equation MV = PQ (where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced), implies that the price level will be stable when the growth rate of the money supply equals the growth rate of real GDP. This is because, if the amount of money in the economy grows at the same rate as the economy itself, there should be no inflationary or deflationary pressure on prices, assuming velocity is constant.

Question 12

The quantity equation becomes the basis for a theory when we assume that velocity of money is constant.

Accepted Answer

The quantity equation, also known as the equation of exchange, is MV = PQ where M is the money supply, V is the velocity of money, P is the price level, and Q is the level of real output. This equation becomes the basis for the quantity theory of money (QTM) when we assume that V is constant. The QTM argues that changes in the quantity of money lead to proportional changes in prices in the long run.

Question 13

During the German hyperinflation of the 1920s,the large increases in the money supply were generated by the German government

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Question 14

According to the quantity theory of money,if the money supply is growing at a rate of 5 percent,real GDP is growing at a rate of 2 percent,and velocity is constant,what will the inflation rate be?

Accepted Answer

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Question 15

Suppose the velocity of money is not fixed,but stable at about two percent growth per year.How could the quantity theory of money be modified to include a stable growth rate of the velocity of money? In this modified quantity theory of money with velocity growing at two percent per year,what would the growth rate of the other variables in the theory need to be to cause inflation?

Accepted Answer

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Question 16

In the United States,businesses are not required to accept cash as payment for goods or services.

Accepted Answer

In the United States, there is no federal law that requires businesses to accept cash as payment for goods or services. Businesses can establish their own payment policies, including refusing cash and requiring electronic payments.

Quiz 14: Money,Banks,and the Federal Reserve System