Question : 15.6   Money, the Price Level, and the Exchange Rate in : 1303599

15.6   Money, the Price Level, and the Exchange Rate in the Long Run

1) An economy’s long-run equilibrium is

A) the equilibrium that would occur if prices were perfectly flexible.

B) the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately.

C) the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately to preserve full employment.

D) the equilibrium that would occur if prices were perfectly fixed to preserve full employment.

E) the equilibrium that would occur if prices were perfectly fixed at the full employment point.

2) A permanent increase in a country’s money supply

A) causes a more than proportional increase in its price level.

B) causes a less than proportional increase in its price level.

C) causes a proportional increase in its price level.

D) leaves its price level constant in long-run equilibrium.

E) causes an inversely proportional fall in its price level.

3) A change in the level of the supply of money

A) increases the long-run values of the interest rate and real output.

B) decreases the long-run values of the interest rate and real output.

C) has no effect on the long-run values of the interest rate, but may affect real output.

D) has no effect on the long-run values of real output, but may affect the interest rate.

E) has no effect on the long-run values of the interest rate and real output.

4) Changes in the money supply growth rate

A) are neutral in the short run.

B) need not be neutral in the short run.

C) are neutral in the long run.

D) need not be neutral in the long run.

E) affect the real output of the economy.

5) A sustained change in the monetary growth rate will

A) immediately affect equilibrium real money balances by raising the money interest rate.

B) eventually affect equilibrium nominal money balances by raising the money interest rate.

C) eventually affect equilibrium real money balances by reducing the money interest rate.

D) eventually affect equilibrium real money balances by raising the real interest rate.

E) eventually affect equilibrium real money balances by raising the money interest rate.

6) Money demand behavior may

A) change as a result of demographic trends or financial innovations such as electronic cash-transfer facilities.

B) change only as a result of demographic trends.

C) change only as a result of financial innovations such as electronic cash-transfer facilities.

D) not change as a result of demographic trends or financial innovations such as electronic cash-transfer facilities.

E) change as a result of demographic trends but not as a result of financial innovations such as electronic cash-transfer facilities.

7) Using year-by-year data from 1987-2007 shows that

A) there is a strong positive relation between average Latin American money-supply growth and inflation.

B) there is a strong negative relation between average Latin American money-supply growth and inflation.

C) there is a strong positive relation between average Latin American money-supply growth and deflation.

D) it is difficult to find a strong positive relation between average Latin American money-supply growth and inflation.

E) there is a weak positive relation between average Latin American money-supply growth and inflation.

8) Which one of the following statements is the MOST accurate?

A) A permanent increase in a country’s money supply causes a proportional long-run depreciation of its currency against foreign currencies.

B) A temporary increase in a country’s money supply causes a proportional long-run depreciation of its currency against foreign currencies.

C) A permanent increase in a country’s money supply causes a proportional long-run appreciation of its currency against foreign currencies.

D) A permanent increase in a country’s money supply causes a proportional short-run depreciation of its currency against foreign currencies.

E) A permanent increase in a country’s money supply causes a proportional short-run appreciation of its currency against foreign currencies.

9) The long run effects of money supply change

A) ambiguous effect on the long-run values of the interest rate or real output, a proportional change in the price level’s long-run value in the opposite direction.

B) proportional effect on the long-run values of the interest rate or real output, a proportional change in the price level’s long-run value in the same direction.

C) no effect on the long-run values of the interest rate or real output, a proportional change in the price level’s long-run value in the same direction.

D) no effect on the long-run values of the interest rate or real output, no change in the price level’s long-run value.

E) ambiguous effect on the long-run values of the interest rate or real output, A disproportional change in the price level’s long-run value in the same direction.