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**Unformatted text preview: **Chapter 30 Money Growth and Inflation TRUE/FALSE 1. The inflation rate is measured as the percentage change in a price index. ANS: T DIF: 1 REF: 30-0 NAT: Analytic LOC: Unemployment and inflation TOP: Inflation KEY: MSC: Definitional 2. U.S. prices rose at an average annual rate of about 4 percent over the last 70 years. ANS: T DIF: 1 REF: 30-0 NAT: Analytic LOC: The role of money TOP: Inflation MSC: Analytical 3. The United States has never had deflation. ANS: F DIF: 1 REF: 30-0 NAT: Analytic LOC: The role of money TOP: Deflation MSC: Definitional 4. In the 1990s, U.S. prices rose at about the same rate as in the 1970s. ANS: F DIF: 1 REF: 30-0 NAT: Analytic LOC: The role of money TOP: U.S. inflation MSC: Definitional 5. As the price level falls, the value of money falls. ANS: F DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Value | Money MSC: Interpretive 6. The price level is determined by the supply of, and demand for, money. ANS: T DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Money market MSC: Definitional 7. If the quantity of money supplied is greater than the quantity demanded, then prices should fall. ANS: F DIF: 2 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Money market MSC: Analytical 8. Dollar prices and relative prices are both nominal variables. ANS: F DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Nominal variables | Real variables MSC: Definitional 9. The quantity equation is M x V = P x Y. ANS: T DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Quantity equation MSC: Definitional 10. According to the Fisher effect, if inflation rises then the nominal interest rate rises. ANS: T DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Fisher effect MSC: Definitional 11. An increase in money demand would create a surplus of money at the original value of money. ANS: F DIF: 2 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Money market MSC: Applicative 222 223 ❖ Chapter 30 /Money Growth and Inflation 12. Hyperinflations are associated with governments printing money to finance expenditures. ANS: T DIF: 1 REF: 30-1 NAT: Analytic LOC: Unemployment and inflation TOP: Hyperinflation MSC: Definitional 13. For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level. ANS: T DIF: 2 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Velocity of money MSC: Analytical 14. The quantity theory of money can explain hyperinflations but not moderate inflation. ANS: F DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Hyperinflation MSC: Interpretive 15. If P represents the price of goods and services measured in money, then 1/ P is the value of money measured in terms of goods and services....

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