Money Growth and Inflation

Question 1

Assume that the velocity of money is constant. If there is a 2 percent increase in the money supply in the short run, it will result in a 2 percent increase in

Athe employment rate

Bthe real interest rate

Cthe nominal interest rate

Dthe real gross domestic product

Ethe nominal gross domestic product

Question 2

Assume that the economy is at full employment. According to the quantity theory of money, a fully anticipated increase of the money supply will impact the price level and real output of an economy in what ways?

APrice level and real GDP will both increase.

BPrice level will decrease, and real GDP will not change.

CPrice level will increase, and real GDP will not change.

DNeither the price level nor real GDP will change.

EPrice level will increase, and real GDP will decrease.

Question 3

Which of the following is a cause of hyperinflation?

AThe money supply increasing rapidly

BReal GDP increasing rapidly

CSimultaneous positive and negative shocks to aggregate supply

DThe nominal interest rate increasing sharply

EBoth aggregate demand and short-run aggregate supply increasing

Question 4

An economy is operating at full employment. If the central bank gradually increases the money supply by 5 percent, what will happen in the long run according to the quantity theory of money?

ANominal output will increase by 5 percent.

BThe unemployment rate will decrease by 5 percent.

COverall employment will increase by 5 percent.

DReal output will increase by 5 percent.

EThe price level will decrease by 5 percent.

Question 5

Real output is $12,000, the price level is 4, and the velocity of money is 2. Based on this, the money supply must be

A$6,000

B$8,000

C$20,000

D$24,000

E$96,000