Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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Money
demand refers to a. | the total
quantity of financial assets that people want to hold. | b. | how much income
people want to make per year. | c. | how much wealth people want to hold in liquid
form. | d. | how much currency the Federal Reserve decides to
print. | | |
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2.
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When
the money market is drawn with the value of money on the vertical axis, if the value of money is
below the equilibrium level, a. | the price level will rise. | b. | the value of
money will rise. | c. | money demand will shift left. | d. | money demand
will shift right. | | |
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3.
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When
the money market is drawn with the value of money on the vertical axis, the price level increases
if a. | either money
demand or money supply shifts right. | b. | either money demand or money supply shifts
left. | c. | money demand shifts right or money supply shifts
left. | d. | money demand shifts left or money supply shifts
right. | | |
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4.
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Economic variables whose values are measured in goods are called a. | dichotomous
variables. | b. | nominal variables. | c. | classical
variables. | d. | real variables. | | |
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5.
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Sally
sells 40 bags of lettuce for a total of $80 at the farmers’ market. a. | The $80 is a
real variable. The quantity of lettuce is a nominal variable. | b. | The $80 is a
nominal variable. The quantity of lettuce is a real variable. | c. | Both the $80 and
the quantity of lettuce are nominal variables. | d. | Both the $80 and
the quantity of lettuce are real variables. | | |
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6.
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An
associate professor of economics gets a $100 a month raise. She figures that with her current monthly
salary she can't buy as many goods as she could last year. a. | Her real and
nominal salary have risen. | b. | Her real and nominal salary have
fallen. | c. | Her real salary has risen and her nominal salary has
fallen. | d. | Her real salary has fallen and her nominal salary has
risen. | | |
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7.
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Interest rates for savings accounts listed on your bank’s
website a. | and a price
index are real variables. | b. | and a price index are nominal
variables. | c. | are real variable and a price index is a nominal
variable. | d. | are nominal variables, and price index is a real
variable | | |
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8.
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The
classical dichotomy refers to the idea that the supply of money a. | is irrelevant
for understanding the determinants of nominal and real variables. | b. | determines
nominal variables, but not real variables. | c. | determines real variables, but not nominal
variables. | d. | is a determinant of both real and nominal
variables. | | |
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9.
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According to the classical dichotomy, when the money supply doubles, which of the
following also double? a. | the price level | b. | nominal
wages | c. | nominal GDP | d. | All of the above
are correct. | | |
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10.
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Velocity is a. | Y/(M x P) and increases if dollars are exchanged less
frequently. | b. | Y/(M x P) and increases if dollars are exchanged more
frequently. | c. | (P x Y)/M and increases if dollars are exchanged less
frequently. | d. | (P x Y)/M and increases if dollars are exchanged more
frequently. | | |
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11.
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Suppose that monetary neutrality and the Fisher effect both hold. An increase in the
money supply growth rate raises. a. | the inflation rate and real interest
rates. | b. | the inflation rate, but not real interest
rates. | c. | real interest rates, but not the inflation
rate. | d. | neither the inflation rate nor real interest
rates. | | |
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12.
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The
cost of changing price tags and price listings is known as a. | inflation-induced tax distortions. | b. | relative-price
variability costs. | c. | shoeleather costs. | d. | menu
costs. | | |
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13.
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Given
a nominal interest rate of 8 percent, in which case below would you earn the highest after-tax real
interest rate? a. | Inflation is 5
percent; the tax rate is 20 percent. | b. | Inflation is 4 percent; the tax rate is 30
percent. | c. | Inflation is 3 percent; the tax rate is 40
percent. | d. | The after-tax real interest rate is the same for all of the
above. | | |
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14.
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Wealth is redistributed from debtors to creditors when inflation is a. | high, but
expected. | b. | low, but expected. | c. | unexpectedly
high. | d. | unexpectedly low. | | |
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15.
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Mary
takes out a fixed interest rate loan and then inflation rises more than expected. The real interest
rate she pays is a. | higher than
she’d expected, and the real value of the loan rises. | b. | higher than
she’d expected, and the real value of the loan falls. | c. | lower than
she’d expected, and the real value of the loan rises. | d. | lower then
she’d expected, and the real value of the loan falls. | | |
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