Chapter 17 Money Growth and Inflation
1.The classical theory of inflation
A.is also known as the quantity theory of money.
B.was developed by some of the earliest economic thinkers.
C.is used by most modern economists to explain the long-run determinants of the inflation rate.
D.All of the above are correct.
2.To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the
A.quantity theory of money.
B.price-index theory of money.
C.theory of hyperinflation.
D.disequilibrium theory of money and inflation.
3.When the price level rises, the number of dollars needed to buy a representative basket of goods
A.increases, and so the value of money rises.
B.increases, and so the value of money falls.
C.decreases, and so the value of money rises.
D.decreases, and so the value of money falls
4.The supply of money is determined by
A.the price level.
B.the Treasury and Congressional Budget Office.
C.the Federal Reserve System.
D.the demand for money.
6.Economic variables whose values are measured in monetary units are called
A.dichotomous variables.
B.nominal variables.
C.classical variables.
D.real variables.
7.Economic variables whose values are measured in goods are called
A.dichotomous variables.
B.nominal variables.
C.classical variables.
D.real variables.
7.The classical dichotomy refers to the idea that the supply of money
A.is irrelevant for understanding the determinants of nominal and real variables.
B.determines nominal variables, but not real variables.
C.determines real variables, but not nominal variables.
D.is a determinant of both real and nominal variables.
8.According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
A.the price level
B.nominal wages
C.nominal GDP
D.All of the above are correct.
9.Monetary neutrality implies that an increase in the quantity of money will
A.increase employment.
B.increase the price level.
C.increase the incentive to save.
D.not increase any of the above.
10.The velocity of money is