DO NOT EXPLAIN, JUST CHOOSE A, B, C, OR D.

DO NOT TYPE THE WHOLE ANSWER JUST THE LETTER.

When economists state that "money is neutral," they mean that the:

Select one:

a.

overall price level has no effect on consumers; only relative prices do.

b.

overall price level has no effect on people's inflation expectations.

c.

money supply does not affect inflation or nominal GDP.

d.

money supply does not affect real GDP or unemployment.

The consumer price index measures the prices of:

Select one:

a.

all final goods bought by American consumers.

b.

a basket of goods bought by a typical American consumer.

c.

intermediate as well as final goods.

d.

introductory, intermediate, and final goods.

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator?

Select one:

a.

The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods and services purchased by consumers.

b.

The CPI measures the average prices of retail goods and services, whereas the GDP deflator measures the average prices of wholesale goods.

c.

The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy.

d.

The CPI measures the average prices of all final goods and services purchased by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy.

The average rate of inflation in the United States over the past 10 years has been around 2.4%. If this trend continues, prices in the United States will double in about _____ years.

Select one:

a.

10

b.

18

c.

29

d.

39

If the money supply and the velocity of money are fixed, then increases in real GDP:

Select one:

a.

are impossible because real GDP must also be fixed.

b.

cause increases in the price level.

c.

cause decreases in the price level.

d.

occur without changes in the price level.

The text states, "inflation is a type of tax." This tax refers to _____ when inflation occurs.

Select one:

a.

the lower purchasing power of money

b.

a higher tax rate that the government must impose

c.

a higher nominal interest rate of a typical loan

d.

a special tax on taxpayers in order for the government to balance its budget

Suppose the nominal GDP of a country is $500 billion. If the velocity of money in the country is 10, then the country's money supply will equal:

Select one:

a.

$5,000 billion.

b.

$510 billion.

c.

$490 billion.

d.

$50 billion.

What two components of the quantity theory of money are assumed to be stable over time?

Select one:

a.

the velocity of money and the price level

b.

real GDP and price level

c.

real GDP and the velocity of money

d.

the money supply and the velocity of money

A measure of the average price received by suppliers is the:

Select one:

a.

consumer price index.

b.

GDP deflator.

c.

producer price index.

d.

exchange rate.

When actual inflation is equal to expected inflation:

Select one:

a.

borrowers are harmed and lenders benefit.

b.

lenders are harmed and borrowers benefit.

c.

both borrowers and lenders are harmed.

d.

neither borrowers nor lenders are harmed.

An assumption of the quantity theory of money is that the velocity of money:

Select one:

a.

remains relatively constant.

b.

rises with increases in the money supply.

c.

rises with increases in real GDP.

d.

rises with increases in the price level.

With respect to real output, in the long run, money is:

Select one:

a.

expansionary.

b.

velocity.

c.

temporary.

d.

neutral.

What is the Fisher effect?

Select one:

a.

the tendency of nominal interest rates to fall with higher expected inflation rates

b.

the tendency of nominal interest rates to rise with higher expected inflation rates

c.

the tendency of real interest rates to fall with higher expected inflation rates

d.

the tendency of real interest rates to rise with higher expected inflation rates

The average number of times a dollar is spent on final goods and services during a year is the:

Select one:

a.

velocity of money.

b.

money supply.

c.

consumption rate.

d.

quantity theory of money.

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:

Select one:

a.

increased by 20%.

b.

decreased by 20%.

c.

remained the same.

d.

cannot be determined without knowing the base year.

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is:

Select one:

a.

5.

b.

20.

c.

100.

d.

1,000.

Which of the following is an example of money illusion assuming that inflation is 5%?

Select one:

a.

You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.

b.

You receive a 5% raise at your part-time job but do not increase or decrease your spending.

c.

You do not receive a raise at your part-time job but cut out some expenses as you notice some prices rising.

d.

You receive a 10% raise at your part-time job and start spending extra money on entertainment every weekend.

When an increase in the money supply is unexpected by firms and workers, real GDP:

Select one:

a.

increases in the short run.

b.

decreases in the short run.

c.

increases in the long run.

d.

decreases in the long run.

Nobel Prize-winning economist Milton Friedman says, "Inflation is always and everywhere a _____."

Select one:

a.

monetary phenomenon

b.

risky phenomenon

c.

velocity phenomenon

d.

growth phenomenon

According to Nobel laureate Milton Friedman, "inflation is _____."

Select one:

a.

a good thing

b.

found everywhere

c.

always present

d.

always and everywhere a monetary phenomenon