Money Growth and Inflation

Question 1

What are nominal variables

Answer 1

They are variables measured in monetary units.

Question 2

What are real variables

Answer 2

They are variables measured in physical units.

Question 3

Dollar prices are nominal variables, and relative prices are real variables.
A. True
B. False

Answer 3

True

Question 4

The real wage is measured in units of output.
A. True
B. False

Answer 4

True

Question 5

What is classical dichotomy

Answer 5

It is the theoretical separation of nominal and real variables.

Question 6

What is monetary neutrality

Answer 6

It is the proposition that changes in the money supply and doesn’t affect real variables.

Question 7

In the short run, real variables are affected by developments in the economy’s monetary system.
A. True
B. False

Answer 7

True

Question 8

In the long run, the quantity of money is largely irrelevant for understanding the determinants of important real variables.
A. True
B. False

Answer 8

True

Question 9

The classical dichotomy is useful in analysing the economy because different forces influence real and nominal variables.
A. True
B. False

Answer 9

True

Question 10

Changes in the supply of money, according to classical analysis affecting nominal variables but not real variables.
A. True
B. False

Answer 10

True

Question 11

What is the quantity theory of money.

Answer 11

It is a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate.

Question 12

The inflation rate is the percentage change in either the: CPI, GDP Deflator, or other index of the overall price level.
A. True
B. False

Answer 12

True

Question 13

What is inflation

Answer 13

It is an increase in the overall level of prices.

Question 14

What is Deflation

Answer 14

It is a fall in the overall level of prices.

Question 15

What is Hyperinflation

Answer 15

It is a term to describe rapid, excessive, and out-of-control general price increases in an economy.

Question 16

What is Disinflation

Answer 16

It is a temporary slowing of the pace of price inflation. The term is used to describe occasions when the inflation rate has reduced marginally over the short term.

Question 17

Interest rate is the opportunity cost of holding money.
A. True
B. False

Answer 17

True

Question 18

The interest rates play a key role in explaining short-run equilibrium in the money market.
A. True
B. False

Answer 18

True

Question 19

The real interest rate corrects the nominal interest rate for the effect of inflation.
A. True
B. False

Answer 19

True

Question 20

What is the quantity equation

Answer 20

It is the equation M×V=P×Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy’s output of goods and services.

Question 21

What is the inflation tax

Answer 21

It is the revenue the government raises by creating money.

Question 22

What is the Fisher effect

Answer 22

It is the one-for-one adjustment of the nominal interest rate to the inflation rate.

Question 23

What is the shoeleather costs

Answer 23

It is the resources wasted when inflation encourages people to reduce their money holdings.

Question 24

What is menu costs

Answer 24

It is the costs of changing prices.

Question 25

The quantity equation formula is:
M×V=P×Y
A. True
B. False

Answer 25

True

Question 26

Governments that run large deficits can reduce the deficit by raising taxes.
A. True
B. False

Answer 26

True

Question 27

When governments raise revenue by printing money, it is said to levy an inflation tax.
A. True
B. False

Answer 27

True

Question 28

When the government prints money, the price level rises, and the dollars in your pocket are less valuable.
A. True
B. False

Answer 28

True

Question 29

What is Seignorage

Answer 29

It is the revenue generated by the government’s right to print money.