Question 1

Other things being equal, the quantity theory of money suggests that any increase in the money supply

Accepted Answer

According to the quantity theory of money, an increase in the money supply will result in a proportionate increase in the price level. This is because the theory assumes that the velocity of money and the level of output are relatively stable in the short run, so any increase in the money supply will simply result in more money chasing the same amount of goods and services, leading to higher prices. Therefore, option D is the correct answer.

Question 2

According to the equation of exchange, if V = 10, P = 3, and Y = $50, then the money supply equals

Accepted Answer

The answer of According to the equation of exchange, if...

Question 3

The Fed would be pursuing a contractionary monetary policy if it was

Accepted Answer

Selling bonds in the open market reduces the money supply, as it decreases the amount of money banks have to lend out. This leads to higher interest rates, which decreases borrowing and investment, and ultimately slows down economic activity. Therefore, selling bonds in the open market is a contractionary monetary policy. The other options listed (A, B, and C) are all examples of expansionary monetary policies.

Question 4

According to the equation of exchange, if real Gross Domestic Product (GDP)is $25 billion, the money supply is $10 billion, and the price index equals 2, then the income velocity of money is

Accepted Answer

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 real GDP. Given M = $10 billion, P = 2, and Q = $25 billion, we solve for V: V = PQ/M = (2 * 25) / 10 = 50 / 10 = 5.

Question 5

The income velocity of money is

Accepted Answer

The income velocity of money is the number of times per year a dollar is spent on final goods and services. It reflects how quickly money changes hands within an economy and is calculated by dividing nominal GDP by the money supply. It is an important factor in determining the overall level of economic activity within an economy.

Question 6

A decrease in the supply of money will, according to the quantity theory of money, lead to

Accepted Answer

According to the quantity theory of money, a decrease in the supply of money will lead to a lower price level. This is because with less money in circulation, there is less demand for goods and services, which leads to lower prices.

Question 7

According to the quantity theory of money

Accepted Answer

The quantity theory of money states that changes in the money supply will lead to proportionate changes in the price level. This is because the theory assumes that the velocity of money (the rate at which money changes hands in the economy) and output (real GDP) are relatively stable in the short run. Therefore, an increase in the money supply will lead to an increase in nominal GDP, which can only be reflected in higher prices since output is assumed to be fixed in the short run.

Question 8

What are the direct and indirect effects of an increase in the money supply?

Accepted Answer

The answer of What are the direct and indirect effects...

Question 9

According to both the equation of exchange and the quantity theory of money

Accepted Answer

According to both the equation of exchange and the quantity theory of money, an increase in the money supply will lead to an increase in the price level, assuming that the real Gross Domestic Product (GDP) and the velocity of money remain constant. Conversely, a decrease in the money supply will lead to a decrease in the price level, again assuming that GDP and velocity remain constant. Therefore, the correct answer is D, as a decrease in the money supply will lead to a decrease in the price level.

Question 10

According to the quantity theory of money, the price level decreases in equal proportion to

Accepted Answer

According to the quantity theory of money, the price level is directly proportional to the money supply, and inversely proportional to the real output of goods and services produced by an economy. Therefore, if the money supply decreases (option D), the price level will also decrease proportionately, as the amount of money chasing the same quantity of goods and services will be reduced. Options A, B, and C do not directly affect the money supply and therefore do not have the same impact on the price level.

Question 11

Which of the following best represents the equation of exchange?

Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is the real output. Choice B represents this equation correctly.

Question 12

-Using a graph above, show the short-run and long-run effects of an expansionary monetary policy.

Accepted Answer

The answer of 
-Using a graph above, show the short-run...

Question 13

The Federal Open Market Committee engages in contractionary monetary policy by

Accepted Answer

The FOMC engages in contractionary monetary policy by selling bonds. This reduces the amount of money in circulation, increases interest rates, and slows down economic growth.

Question 14

According to the quantity theory of money, an excess quantity of money supplied will lead to

Accepted Answer

According to the quantity theory of money, the price level is directly proportional to the quantity of money in circulation. Therefore, an excess quantity of money supplied will result in a higher price level (inflation).

Question 15

The formula of the equation of exchange is

Accepted Answer

The formula of the equation of exchange states that the money supply (MS) multiplied by the velocity of money (V) equals the price level (P) multiplied by real GDP (Y). This can be expressed mathematically as MS*V = P*Y.

Question 16

According to the quantity theory of money, increases in the money supply lead to

Accepted Answer

According to the quantity theory of money, increases in the money supply lead to a proportionate increase in the price level. This is because an increase in the money supply means there is more money chasing the same amount of goods and services, leading to higher prices.

Question 17

The hypothesis that changes in the money supply lead to an equiproportional change in the price level is called

Accepted Answer

The hypothesis that changes in the money supply lead to an equiproportional change in the price level is known as the quantity theory of money. It is a key tenet of classical economics and monetarism, and suggests that inflation is primarily driven by the amount of money in circulation.

Question 18

Why is it more difficult for the Fed to control the money supply today than it was fifty years ago?

Accepted Answer

The answer of Why is it more difficult for the...

Question 19

The velocity of money

Accepted Answer

The velocity of money measures the number of times per year that a dollar is spent on final goods and services. It is calculated as the nominal GDP divided by the money supply (V = GDP/M).

Question 20

According to the equation of exchange, if M = $400, P = 8, and Y = $200, then V equals

Accepted Answer

According to the equation of exchange, M x V = P x Y. Rearranging the formula to solve for V, we get V = (P x Y) / M. Plugging in the given values, we get V = (8 x $200) / $400 = 4. Therefore, the correct answer is Option B.

Quiz 15: Domestic and International Dimensions of Monetary Policy