ECON 1040 CH 12 QUESTION AND ANSWERS VERIFIED 100% CORRECT

ECON 1040 CH 12 QUESTION AND ANSWERS VERIFIED 100% CORRECT 1. Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes a. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. b. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. c. your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. d. your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased. - ANSWER 11.ANSWER: A 2. According to the classical dichotomy, when the money supply doubles, which of the following also doubles? a. the price level and nominal wages b. the price level, but not the nominal wage c. the nominal wage, but not the price level d. neither the nominal wage nor the price level - ANSWER 12.ANSWER: A 3. 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 13.ANSWER: D 4. Which of the following is correct? a. The classical dichotomy separates real and nominal variables. b. Monetary neutrality is the proposition that changes in the money supply do not change real variables. c. When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. d. All of the above are correct. - ANSWER 14.ANSWER: D 5. If M = 6,000, P = 3, and Y = 3,000, what is velocity? a. 6 b. 1.5 c. 0.67 d. 0.167 - ANSWER 15.ANSWER: B 6. If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is a. 3.33 . b. 0.83 . c. 1.20. d. 13.33. - ANSWER 16.ANSWER: C 7. According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then a. nominal and real GDP would rise by 5 percent. b. nominal GDP would rise by 5 percent; real GDP would be unchanged . c. nominal GDP would be unchanged; real GDP would rise by 5 percent. d. neither nominal GDP nor real GDP would change. - ANSWER 17.ANSWER: B 8. The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2? a. the price level and velocity. b. the price level but not velocity . c. velocity but not the price level. d. neither the price level nor velocity. - ANSWER 18.ANSWER: C 9. Other things the same, an increase in velocity means that a. transactions per dollar increase so the price level rises. b. transactions per dollar increase so the price level falls. c. transactions per dollar decrease so the price level rises. d. transactions per dollar decrease so the price level falls. - ANSWER 19.ANSWER: A 10. Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level a. is 1.5 times its old value. b. is 3 times its old value. c. is 6 times its old value. d. is the same as its old value. - ANSWER 20.ANSWER: C 21. The source of hyperinflations is primarily a. lower output growth. b. continuing declines in velocity. c. increases in money-supply growth. d. continuing increases in money demand. - ANSWER 21.ANSWER: C 22. The inflation tax refers to a. the revenue a government creates by printing money. b. higher inflation which requires more frequent price changes. c. the idea that, other things the same, an increase in the tax rate raises the inflation rate. d. taxes being indexed for inflation. - ANSWER 22.ANSWER: A 23. The inflation tax falls mostly heavily on a. those who hold a lot of currency and accounts for a large share of U.S. government revenue. b. those who hold a lot of currency but accounts for a small share of U.S. government revenue. c. those who hold little currency and accounts for a large share of U.S. government revenue. d. those who hold little currency but accounts for a small share of U.S. government revenue. - ANSWER 23.ANSWER: B 24. The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the a. Friedman Effect. b. Hume Effect. . c. Fisher Effect d. the inflation tax - ANSWER 24.ANSWER: C 25. Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of a. 3.5 percent and a real interest rate of 5 percent. b. 3.5 percent and a real interest rate of 2 percent. c. 5 percent and a real interest rate of 3.5 percent d. 5 percent and a real interest rate of 2 percent - ANSWER 25.ANSWER: B 26. If a country experienced deflation, then a. the nominal interest rate would be greater than the real interest rate. b. the real interest rate would be greater than the nominal interest rate. c. the real interest rate would equal the nominal interest rate. d. nominal GDP would be greater than the money supply. - ANSWER 26.ANSWER: B 27. The costs of changing price tags and price listings are known as a. inflation-induced tax distortions. b. relative-price variability costs . c. shoeleather costs. d. menu costs. - ANSWER 27.ANSWER: D 28. When inflation falls, people