Question : 16.5   The Quantity Theory of Money 1) The quantity equation states : 1266954

16.5   The Quantity Theory of Money

1) The quantity equation states that the

A) money supply divided by the velocity of money equals the price level divided by real output.

B) money supply times the velocity of money equals the price level times real output.

C) money supply times the price level equals real output divided by the velocity of money.

D) money supply times the price level equals real output times the velocity of money.

2) Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

A) 19 percent.

B) 15 percent.

C) 11 percent.

D) 6 percent.

3) The quantity theory of money predicts that, in the long run, inflation results from the

A) velocity of money growing at a faster rate than real GDP.

B) velocity of money growing at a lower rate than real GDP.

C) money supply growing at a lower rate than real GDP.

D) money supply growing at a faster rate than real GDP.

4) The quantity theory of money was derived from the quantity equation by asserting that

A) real output was fixed.

B) the money supply was fixed.

C) the velocity of money was fixed.

D) the velocity of money was zero.

5) According to the quantity theory of money, the inflation rate equals

A) the money supply minus real output.

B) the growth rate of the money supply minus the growth rate of real output.

C) real output minus the money supply.

D) the growth rate of real output minus the growth rate of the money supply.

6) According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be

A) 15 percent.

B) 20 percent.

C) 25 percent.

D) 100 percent.

7) According to the quantity theory of money, deflation will occur if the

A) money supply is less than real GDP.

B) money supply is more than real GDP.

C) money supply grows at a slower rate than real GDP.

D) money supply grows at a faster rate than real GDP.

8) Hyperinflation can be caused by

A) the government selling bonds to the central bank.

B) the central bank selling bonds to the public.

C) the government selling bonds to the public.

D) the central bank selling bonds to the government.

9) In 1980, one Zimbabwean dollar was worth 1.47 U.S. dollars. By the end of 2008, the exchange rate was one U.S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience

A) stagflation.

B) deflation.

C) inflation.

D) hyperinflation.

10) In 2008, the inflation rate in Zimbabwe rose to almost 15 billion percent, and eventually foreigners and local residents refused to accept the Zimbabwean dollar for goods and services. In early 2009, the new Zimbabwean government decided to

A) stop printing currency and officially convert to a barter economy.

B) abandon its own currency and make the U.S. dollar the country’s official currency.

C) ban all foreign currency to force residents to use the local currency.

D) convert from a system of fiat money to commodity money.