Chapter 17

Question 1

Most economists believe the principle of monetary neutrality is

a. relevant to both the short and long run.
b. irrelevant to both the short and long run.
c. mostly relevant to the short run.
d. mostly relevant to the long run.

Answer 1

d

Question 2

The principle of monetary neutrality implies that an increase in the money supply will

a. increase real GDP and the price level.
b. increase real GDP, but not the price level.
c. increase the price level, but not real GDP.
d. increase neither the price level nor real GDP.

Answer 2

c

Question 3

The velocity of money is

a. the rate at which the Fed puts money into the economy.
b. the same thing as the long-term growth rate of the money supply.
c. the money supply divided by nominal GDP.
d. the average number of times per year a dollar is spent.

Answer 3

d

Question 4

If P = 4 and Y = 450, then which of the
following pairs of values are possible?
a. M = 800, V = 4
b. M = 600, V =3
c. M = 400, V =2
d. M = 200, V =1

Answer 4

b

Question 5

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level lower?

a. Y or V rise
b. Y or V fall
c. Y rises or V falls
d. Y falls or V rises

Answer 5

c

Question 6

Suppose over some period of time the money supply tripled, velocity fell by half, and real GDP doubled. According to the quantity equation the price level is now

a. 6 times its old value.
b. 3 times its old value.
c. 1.5 times its old value.
d. 0.75 times its old value.

Answer 6

d