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Exam 25: Money and the Price Level in the Long Run

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Question 21

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Which of the following reflects the basic concept of the equation of exchange?

A) MV = PY
B) Change in equilibrium real GDP = Change in autonomous spending × 1/(1 - MPC)
C) Potential change in M1 = Change in excess reserves × (1/r)
D) Unemployment rate = Number of unemployed / Number in labor force

E) B) and C)
F) A) and C)

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Question 22

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The theory that a given change in the money supply leads to a proportional change in the price level in the long run is known as the:

A) equation of money theory.
B) quantity theory of money.
C) M1 theory.
D) money supply theory.

E) A) and D)
F) C) and D)

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Question 23

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Over the past year, Macroland's economy experienced several changes. Money supply grew by 2.5%, velocity grew by 0.5%, real GDP grew by 2%, and employment grew by 1%. According to the equation of exchange, what growth rate in nominal GDP would be expected in Macroland for this time period?

The Venn diagram shows real variables versus nominal variables, where both nominal and real variables play roles in the business cycle. All the following are examples of nominal variables, EXCEPT:

Mario thinks that nominal interest rates will increase or decrease by the same amount that the expected inflation rate increases or decreases. Economists would say that Mario believes in:

When considering money supply and money demand, the price of money is measured:

Which statement is NOT consistent with monetary neutrality?

Why do most economists believe in the neutrality of money?

(Table 2: Income and Consumer Price Index Data for Four Cities, 2008 and 2018) Table 2 provides income and Consumer Price Index (CPI) data for four cities for two years. Citizens of which city would be suffering from the money illusion if they claimed that they were better-off financially in 2018? $\begin{array}{c}\text { Table 2: Income and Consumer Price Index Data for Four Cities, } 2008 \text { and } 2018\\\begin{array}{|c|c|c|c|c|}\hline \quad \quad \quad & \text { City A } \quad \quad \quad & \text { City B } \quad \quad \quad & \text { City C } \quad \quad \quad & \text { City D } \quad \quad \\\hline \begin{array}{c}2008 \text { average } \\\text { income }\end{array} & \$ 40,000 & \$ 70,000 & \$ 85,000 & \$ 100,000 \\\hline 2008 \text { CPI } & 120 & 130 & 90 & 100 \\\hline \begin{array}{c}2018 \text { average } \\\text { income }\end{array} & \$ 65,000 & \$ 100,000 & \$ 160,000 & \$ 160,000 \\\hline 2018 \text { CPI } & 150 & 150 & 160 & 170 \\\hline\end{array}\end{array}$

If velocity is relatively stable, then changes in the money supply:

Extremely rapid increases in the average price level are known as:

Why did Germany experience hyperinflation after World War I?

Monetary policy affects _____ but does NOT affect:

The velocity of money is estimated by:

How is the price of money measured in the long-run money supply and money demand model?

Milton Friedman's research concluded that monetary policy impacts:

The real value of money is:

Connections between the money supply and nominal GDP and between money supply growth and inflation are key concepts in the _____ school of thought in economics.

The view that inflation is caused by excessive growth in the money supply is known as the _____ school of economic thought.

Unexpected deflation harms: