Chapter 30 - 32

Inflation can be measured by the

• change in the consumer price index.

• percentage change in the consumer price index.

• percentage change in the price of a specific commodity.

• change in the price of a specific commodity.

2. The supply of money is determined by

• a. the price level.

• b. the Treasury and Congressional Budget Office.

• c. the Federal Reserve System.

• d. the demand for money.

3. When the money market is drawn with the value of money on the

vertical axis, the price level increases if

• a. either money demand or money supply shifts right.

• b. either money demand or money supply shifts left.

• c. money demand shifts right or money supply shifts left.

• d. money demand shifts left or money supply shifts right.

4. When the money market is drawn with the value of money on the

vertical axis, an increase in the price level causes a

• a. shift to the right of the money demand curve.

• b. shift to the left of the money demand curve.

• c. movement to the left along the money demand curve.

• d. movement to the right along the money demand curve.

5. As the price level decreases, the value of money

• a. increases, so people want to hold more of it.

• b. increases, so people want to hold less of it.

• c. decreases, so people want to hold more of it.

• d. decreases, so people want to hold less of it.

6. When the money market is drawn with the value of money on the

vertical axis, if the price level is higher the equilibrium price level, there is

a

• a. shortage, so the price level will rise.

• b. shortage, so the price level will fall.

• c. surplus, so the price level will rise.

• d. surplus, so the price level will fall.

7. Refer to Figure 1.

When the money supply curve shifts from MS1 to MS2,

• a. the demand for goods and services decreases.

• b. the economy's ability to produce goods and services increases.

• c. the equilibrium price level increases.

• d. the equilibrium value of money increases.

8. The price of a Honda Accord divided by the price of a Honda Civic is a

• a. classical variable.

• b. dichotomous variable.

• c. nominal variable.

• d. real variable.

9. According to the classical dichotomy, when the money supply doubles,

which of the following also double?

• a. the price level and nominal wages

• b. the price level, but not the nominal wage

• c. the nominal wage, but not the price level

• d. neither the nominal wage nor the price level

10. Monetary neutrality implies that an increase in the quantity of money

will

• a. increase employment.

• b. increase the price level.

• c. increase production.

• d. not affect the price level.