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

15.4   Chapter Figures

The figure above shows a firm's total revenue and total cost curves.

1) Based on the figure above, when the firm maximizes its profit, it produces ________ cans per day.

A) 0

B) more than 0 and less than 5

C) 5 or more but less than 10

D) 10

E) more than 10

2) To maximize its profit, the firm in the figure above produces ________ cans per day and ________.

A) 0; incurs an economic loss of less than $20

B) between 3 to 5 cans; earns a normal profit

C) 10; earns an economic profit of $2.90

D) 10; earns an economic profit of $29

E) more than 10; earns an economic profit

The figure above shows a firm's marginal revenue and marginal cost curves.

3) Based on the figure above, the price of a can is $8; if the price increased to $12, then the firm would

A) produce zero cans.

B) decrease the amount of cans produces it but not to zero.

C) not change the amount of cans it produces.

D) increase the amount of cans it produces.

E) More information is needed to determine what action the firm will take.

4) Suppose the firm's marginal cost of producing a can increases by $1 per can. Then, based on the figure above, the firm would

A) produce zero cans.

B) decrease the amount of cans it produces but not to zero cans.

C) not change the amount of cans it produces.

D) increase the amount of cans it produces.

E) More information is needed to determine what action the firm will take.

The figure above shows the cost curves and marginal revenue curve for a perfectly competitive firm.

5) Based on the figure above, what is the price of a can?

A) $0.

B) $3.00 per can

C) $5.14 per can

D) None of the above prices is correct.

E) More information is needed to determine the price of a can.

6) Based on the figure above, if the firm produces 7 cans per day, the firm ________ maximizing its profit and is ________.

A) is; incurring an economic loss

B) is; making a normal profit

C) is; making an economic profit

D) is not; incurring an economic loss

E) is not; making a normal profit

7) Suppose the price of a can was $5.14. In this case, to maximize its profit, the firm illustrated in the figure above would

A) increase its production and would make an economic profit.

B) not change its production and would make a normal profit.

C) not change its production and would make an economic profit.

D) increase its production and would incur an economic loss.

E) not change its production and would incur an economic loss.

8) The firm in the figure above is ________ that is equal to ________.

A) making an economic profit; $5.14 × 7

B) making an economic profit; $3.00 × 7

C) incurring an economic loss; $5.14 × 7

D) incurring an economic loss; ($5.14 - $3.00) × 7

E) making an economic profit; ($5.14 - $3.00) × 7

The figure above shows some of a firm's cost curves and its marginal revenue curve.

9) Based on the figure above, what is the price of a can?

A) $0

B) $8.00 per can

C) $5.10 per can

D) None of the above prices is correct.

E) More information is needed to determine the price of a can.

10) Based on the figure above, if the firm produces 10 cans per day, the firm ________ maximizing its profit and is ________.

A) is; incurring an economic loss

B) is; making zero economic profit

C) is; making an economic profit

D) is not; incurring an economic loss

E) is not; making zero economic profit

15.4   Chapter Figures

The figure above shows a firm's total revenue and total cost curves.

1) Based on the figure above, when the firm maximizes its profit, it produces ________ cans per day.

A) 0

B) more than 0 and less than 5

C) 5 or more but less than 10

D) 10

E) more than 10

2) To maximize its profit, the firm in the figure above produces ________ cans per day and ________.

A) 0; incurs an economic loss of less than $20

B) between 3 to 5 cans; earns a normal profit

C) 10; earns an economic profit of $2.90

D) 10; earns an economic profit of $29

E) more than 10; earns an economic profit

The figure above shows a firm's marginal revenue and marginal cost curves.

3) Based on the figure above, the price of a can is $8; if the price increased to $12, then the firm would

A) produce zero cans.

B) decrease the amount of cans produces it but not to zero.

C) not change the amount of cans it produces.

D) increase the amount of cans it produces.

E) More information is needed to determine what action the firm will take.

4) Suppose the firm's marginal cost of producing a can increases by $1 per can. Then, based on the figure above, the firm would

A) produce zero cans.

B) decrease the amount of cans it produces but not to zero cans.

C) not change the amount of cans it produces.

D) increase the amount of cans it produces.

E) More information is needed to determine what action the firm will take.

The figure above shows the cost curves and marginal revenue curve for a perfectly competitive firm.

5) Based on the figure above, what is the price of a can?

A) $0.

B) $3.00 per can

C) $5.14 per can

D) None of the above prices is correct.

E) More information is needed to determine the price of a can.

6) Based on the figure above, if the firm produces 7 cans per day, the firm ________ maximizing its profit and is ________.

A) is; incurring an economic loss

B) is; making a normal profit

C) is; making an economic profit

D) is not; incurring an economic loss

E) is not; making a normal profit

7) Suppose the price of a can was $5.14. In this case, to maximize its profit, the firm illustrated in the figure above would

A) increase its production and would make an economic profit.

B) not change its production and would make a normal profit.

C) not change its production and would make an economic profit.

D) increase its production and would incur an economic loss.

E) not change its production and would incur an economic loss.

8) The firm in the figure above is ________ that is equal to ________.

A) making an economic profit; $5.14 × 7

B) making an economic profit; $3.00 × 7

C) incurring an economic loss; $5.14 × 7

D) incurring an economic loss; ($5.14 - $3.00) × 7

E) making an economic profit; ($5.14 - $3.00) × 7

The figure above shows some of a firm's cost curves and its marginal revenue curve.

9) Based on the figure above, what is the price of a can?

A) $0

B) $8.00 per can

C) $5.10 per can

D) None of the above prices is correct.

E) More information is needed to determine the price of a can.

10) Based on the figure above, if the firm produces 10 cans per day, the firm ________ maximizing its profit and is ________.

A) is; incurring an economic loss

B) is; making zero economic profit

C) is; making an economic profit

D) is not; incurring an economic loss

E) is not; making zero economic profit

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