12.2 Money, the Price Level, and Inflation
1) In the long-run, money market equilibrium determines
A) the value of money.
B) the nominal interest rate
C) the real interest rate.
D) real GDP.
E) velocity.
2) The "value of money"
A) is the quantity of goods and services that a unit of money can buy.
B) is determined by Fed regulations.
C) increases during inflationary periods.
D) increases during economic expansions.
E) is directly related to the price level.
3) Which of the following applies to the "value of money"?
i.It is the inverse of the price level.
ii.The value of money falls during economic expansions.
iii.It is the quantity of goods and services that a unit of money will buy.
A) i and iii
B) i, ii and iii
C) iii only
D) ii and iii
E) i and ii
4) In the long run, what determines the value of money?
A) the government budget balance
B) international trade
C) money market equilibrium
D) equilibrium in the loanable funds market
E) real GDP
5) If the quantity of money supplied ________ the quantity demanded, in the long run the value of money ________.
A) exceeds; falls as people spend their surplus money
B) exceeds; rises as people buy bonds
C) is less than; falls as people spend their surplus money
D) is less than; does not change unless the Fed increases the money supply
E) equals; equals zero
6) The long-run money demand curve shows
A) that the value of money influences the quantity of money that households and firms plan to hold.
B) that the value of money is directly related to the quantity of money demanded.
C) the relationship between real GDP and money demand.
D) the relationship between potential GDP and money demand.
E) how the Fed determines the appropriate interest rate.
7) If the Fed increases the quantity of money, in the short run the ________ and in the long run the ________.
A) price level rises; the nominal interest rate falls
B) nominal interest rate falls; the price level falls
C) nominal interest rate rises; the price level falls
D) nominal interest rate falls; the price level rises
E) nominal interest rate rises; the price level rises
8) In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent?
A) The value of money falls by 5 percent and there will be a movement down along the LRMD curve.
B) The real interest rate falls and the LRMD curve shifts rightward.
C) The nominal interest rate rises by 5 percent.
D) The price level rises by 5 percent and the LRMD shifts leftward.
E) The value of money rises by 5 percent.
9) In the figure above, what happens if the Fed increases the quantity of money by 8 percent?
A) The LRMD curve shifts rightward to restore equilibrium.
B) The value of money falls to 0.92 and there is a movement downward along the LRMD.
C) The price level falls to 1.08.
D) The interest rate rises to 1.08.
E) The value of money rises to 1.08.
10) In the long run, an increase in the quantity of money ________ the value of money and ________ the price level.
A) raises; raises
B) raises; does not change
C) lowers; lowers
D) lowers; does not change
E) lowers; raises
