Review Questions for Macro Economics ch 7.docx

10 when the price level rises by 10 percent products

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10) When the price level rises by 10 percent, products that cost $20 last year now cost A) $21. B) $25. C) $22. D) $200. E) $2.
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11) Consumers in Studentland buy Pizza and Pepsi — nothing else. Prices and quantities are shown in the table below. Year Slices of PizzaPrice per Slice Cans of Pepsi Price per Can 2015 40 10 10 20 2016 60 12 20 24 The annual rate of inflation between 2015 and 2016 was A) 60 percent. B) 40 percent. C) 100 percent. D) 67 percent. E) 20 percent. 12) Deflation A) hurts borrowers and savers. B) hurts borrowers but benefits savers. C) benefits borrowers and savers. D) benefits borrowers but hurts savers. E) has no effect on savers or borrowers. 13) If a basket of products and services cost $200 in the base year and $450 in a later year, the Consumer Price Index (CPI) in the later year is A) 125. B) 225. C) 250. D) 300. E) 450. 14) According to the quantity theory of money, an increase in the quantity of money A) increases average prices. B) increases velocity. C) increases real GDP. D) does all of the above. E) does none of the above.
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15) If nominal GDP is 2,000 and the money supply is 80, what is the velocity of money?
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