Chapter 11.4

Question 1

The relationship between money and nominal GDP in the economy is summarized by

the budget constraint.

the quantity equation of money.

the Phillips curve.

the money multiplier.

the money supply equation.

Answer 1

the quantity equation of money.

Question 2

The quantity equation is written as:

M x Y = P x V

P = M x Y x V

M x V = P x Y

M x P = Y x V

M = P x Y x V

Answer 2

M x V = P x Y

Question 3

In the long run, an increase in the money supply

is expected to lead to an increase in velocity.

has no predictable effect on nominal GDP.

is expected to lead to a decrease in nominal GDP.

is expected to lead to an increase in nominal GDP.

is expected to lead to a decrease in velocity.

Answer 3

is expected to lead to an increase in nominal GDP.

Question 4

In the long run, a decrease in the money supply

is expected to lead to a decrease in nominal GDP.

is expected to lead to a decrease in inflation.

is expected to lead to a decrease in velocity.

is expected to lead to an increase in velocity.

is expected to lead to an increase in nominal GDP.

Answer 4

is expected to lead to a decrease in inflation.

Question 5

The quantity equation tells us that, in the long run, an increase in the growth of the money supply will always increase inflation by the same amount if velocity is constant.

false
true

Answer 5

true

Question 6

In one year, the quantity of money is $30,000; the velocity is 6.5; and the real GDP is $100,000. If the velocity rises to 7.0 the next year but the quantity of money and the real GDP stay the same, by how much has the GDP deflator changed?

It has fallen by 0.4 points.
It has fallen by 0.2 points.
It has risen by 0.4 points.
It has stayed the same.
It has risen by 0.2 points.

Answer 6

It has risen by 0.2 points.