question archive 1) From the equation of exchange, if both nominal income and the quantity of money (m) have tripled, while the price level(P) has increased by 5o percent and velocity (V) a) Also triples b) Doubles c) Decreased by 50 percent d) Increased by 50 percent e) None of the above 2) The main reason that hyperinflation renders a currency worthless is that _ a) Laws against raising prices are easily evaded b) As soon as inflation seems out of control, everyone knows that the currency will soon lose whatever value it has today
1) From the equation of exchange, if both nominal income and the quantity of money (m) have tripled, while the price level(P) has increased by 5o percent and velocity (V) a) Also triples b) Doubles c) Decreased by 50 percent d) Increased by 50 percent e) None of the above 2) The main reason that hyperinflation renders a currency worthless is that _ a) Laws against raising prices are easily evaded b) As soon as inflation seems out of control, everyone knows that the currency will soon lose whatever value it has today
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1) From the equation of exchange, if both nominal income and the quantity of money (m) have tripled, while the price level(P) has increased by 5o percent and velocity (V)
a) Also triples
b) Doubles
c) Decreased by 50 percent
d) Increased by 50 percent
e) None of the above
2) The main reason that hyperinflation renders a currency worthless is that _
a) Laws against raising prices are easily evaded
b) As soon as inflation seems out of control, everyone knows that the currency will soon lose whatever value it has today.
c) The government cannot print money fast enough to keep up with rising prices.
d) The goverments' official inflation rate is always a gross understatement
e) Reducing government expenditures is politically unpopular
3) Rational inattention refers to
a) The cost to the firm losing sales from alienating customers
b) Firms making infrequent price decisions because of the time limit and effort those decision require
c) The risk a firm when they do not pay attention to their customers
d) All of the above
e) None of the above
4) Economist use the term 'potential output' to refer to _
a) The maximum level of output of which an economy is capable
b) A level of output that has not yet been achieved.
c) The sum of finished goods plus in production that will be finished within the year
d) The level of output that occurs when all prices are fully adjusted
e) None of the above
5) Open Market operations alter the money supply by_
a) Adding currency to or withdrawing currency from banks vaults.
b) Influencing banks ability to make loans to individuals and corporations
c) Influencing banks ability to make loans to the government
d) Adding currency to or withdrawing currency from the checking accounts of individuals and corporations
e) None of the above
6) The quantity theory of money_
a) Gives mathematical grounding for the view that a country's central bank determines the general price level through control of the money supply.
b) Implies that changes in the money supply never have an impact on real variables
c) Is used by classical economist to explain how frequent changes in velocity lead to infrequent changes in the price level
d) All of the above
e) None of the above
7) The IS curve_
a) shows how changes in interest rates affect equilibrium output.
b) Explains short run fluctuations in output and inflation
c) Demonstrates how central banks respond to changes in inflation with changes in the interest rate.
d) All of the above
e) None of the above
8) The MP curve indicates the relationship between _ and the _
a) Taxes;price level
b) Monetary policy; is curve
c) The real interest rate; inflation rate
d) All of the above
e) None of the above
9) When the US real interest rate rises_
a) Makes US exports more expensive in foreign currencies
b) US dollar assets earn a lower return relative to foreign assets
c) Imports will decrease
d) All of the above
e) None of the above
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1)From the equation of exchange, if both nominal income and the quantity of money (m) have tripled, while the price level(P) has increased by 5o percent and velocity (V) d) Increased by 50 percent.
Since the quantity theory of money holds this relation of direct proportion between the money supply and the price level. Hence, the quantity theory of money has the product of the quantity of money and velocity of circulation on the left side and the product of price level and the real GDP, that is, the nominal GDP on the right-hand side. As any change will be equivalent on both sides. Hence, the price will rise by 50%, and then the velocity will also be increased by 50%.
2) The main reason that hyperinflation renders a currency worthless is that _ b) As soon as inflation seems out of control, everyone knows that the currency will soon lose whatever value it has today.
Since hyperinflation is a situation when the rate of inflation goes more than 100% and in this situation, the value of money falls speedily.
3) Rational inattention refers to d) All of the above.
Since rational attention refers to when a firm concentrates on each variable like paying attention to customers, extract sales revenue from them which helps them in the long run to earn the maximum possible output.
4) Economist uses the term 'potential output' to refer to _ a) The maximum level of output of which an economy is capable.
Since the potential output is the level of output which is achieved by an economy to the maximum extent with its all resources.
5) Open Market operations alter the money supply by_ b) Influencing banks ability to make loans to individuals and corporations.
Since open market operations make a purchase or sell off the government bonds which influences the fund's availability of the commercial banks. So, credit creation will also be impacted. For example, the open market purchases higher funds available with the commercial bank which also raises credit creation.
6) The quantity theory of money_ d) All of the above.
Since Quantity theory of money serves as a relationship between the price level and money supply. It would never impact the real variable.
7) The IS curve_ a) shows how changes in interest rates affect equilibrium output.
Since the IS curve denotes the saving and investment curve which shows how the equilibrium output and the interest rates are related in the goods market.
8) The MP curve indicates the relationship between _ and the _ e) None of the above.
the MP curve shows the relationship between marginal product and the quantities of output.
(9) When the US real interest rate rises c) Imports will decrease.
Since the rise in the US real interest rate makes the people hold less money which enables them to demand a lesser number of goods and services. As a result, the import will also decrease.
