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Exam 25: Money and the Price Level in the Long Run

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Question 1

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What two formulas both represent the equation of exchange?

A) M × V = GDP_nominal; P × Y_{real GDP} = P_illusion × Y_nominal
B) M × V = GDP_nominal; M × V = P × Y_{real GDP}
C) P × Y_{real GDP} = P_illusion × Y_nominal; M × V = P × Y_{real GDP}
D) M × V = P × Y_{real GDP}; GDP_nominal = P_illusion × Y_nominal

E) C) and D)
F) B) and D)

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Question 2

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How does the equation of exchange clarify the relationship between the money supply and inflation?

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The equation of exchange states that the...

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Question 3

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The equation of exchange indicates that if a decrease in the money supply does not impact velocity or real GDP, then it must:

According to the quantity theory of money, in the long run, changes in the money supply affect ____ GDP but not _____ GDP.

The following data are for Econia during 2010. The nominal GDP was $440 billion, the inflation rate was 2%, the nominal interest rate was 6.5%, and the nominal GDP growth rate was 3%. What was Econia's real interest rate during 2010?

The velocity of money is:

The equation of exchange emphasizes the connection between changes in:

What is currency reform?

What would allow an increase in the money supply of a country that is on the gold standard?

The real interest rate will be higher than the nominal interest rate when:

The following data are for Macroland during 2010. The nominal GDP was $13.8 billion, the inflation rate was 3%, the nominal interest rate was 5.5%, and the nominal GDP growth rate was 1.5%. What was Macroland's real interest rate during 2010?

In 2010, the average price level in Macroland is 130, and in 2015, the price level rises to 162. During the same time period, Inga's salary rises from $70,000 to $85,000. Over this time period, the purchasing power of Inga's income:

A negative inflation rate is referred to as:

The inflation rate is 3% and stable. If a bank wants to earn a real interest rate of 4%, what interest rate will Hua Xing need to pay on the car loan that she is requesting?

The Fisher equation is:

Analysis based on the Fisher effect uses the _____ inflation rate rather than the _____ inflation rate because borrowing and lending are:

According to U.S. data for the past sixty years, money supply growth is:

Over the past year, Macroland's economy experienced several changes. Money supply grew by 3%, velocity grew by 1%, real GDP grew by 2%, and employment grew by 1.5%. According to the equation of exchange, what growth rate in nominal GDP would be expected in Macroland for this time period?

The equation of exchange indicates that if velocity is steady, then a rising money supply will cause:

(Table 1: Econia's Consumer Price Index and Salary Data, 2008 and 2018) Table 1 provides data on Econia's Consumer Price Index (CPI) and average salaries for two years. Junko says that Econia's workers are twice as prosperous as they were before, but Marko disagrees. Who is suffering from the money illusion and why? $\begin{array}{c}\text { Table 2: Income and Consumer Price Index Data for Four Cities, } 2008 \text { and } 2018\\\begin{array}{|c|c|c|c|c|}\hline \quad \quad \quad & \text { City A } \quad \quad \quad & \text { City B } \quad \quad \quad & \text { City C } \quad \quad \quad & \text { City D } \quad \quad \\\hline \begin{array}{c}2008 \text { average } \\\text { income }\end{array} & \$ 40,000 & \$ 70,000 & \$ 85,000 & \$ 100,000 \\\hline 2008 \text { CPI } & 120 & 130 & 90 & 100 \\\hline \begin{array}{c}2018 \text { average } \\\text { income }\end{array} & \$ 65,000 & \$ 100,000 & \$ 160,000 & \$ 160,000 \\\hline 2018 \text { CPI } & 150 & 150 & 160 & 170 \\\hline\end{array}\end{array}$