Tut 8: macro

 In the long run, inflation is caused by

• Banks that have market power and refuse to lend money.

• Governments that raise taxes so high that it increases the cost of doing business and, hence, raises prices.

•  Governments that print too much money.

•  Increases in the price of inputs, such as labor and oil.

What prices rise at an extraordinarily high rate, it is called

•  inflation

• Hyperinflation.

• Deflation.

•  Disinflation.

If the price level doubles,

• The quantity demanded of money falls by half.

• The money supply has been cut by half

• Nominal income is unaffected.

• The value of money has been cut by half.

 In the long run, the demand for money is most dependent upon

• The level of prices

• The availability of credit cards.

• The availability of banking outlets.

• The interest rate. 

  
  

The quantity theory of money concludes that an increase in the money supply causes

• A proportional increase in velocity

• A proportional increase in price.

  
  

• . A proportional increase in real output.

  
  

• A proportional decrease in velocity.

  
  

An example of a real variable is

• The nominal interest rate.

• The ratio of the value of wages to the price of soda

• The price of corn.

• The dollar wage

The quantity equation states that

•  Money x price level = velocity x real output.

• Money x real output = velocity x price level.

• Money x velocity = price level x real output.

If money is neutral,

• An increase in the money supply does nothing.

• The money supply cannot be changed because it is tied to a commodity such as gold.

• A change in the money supply only affects real variables such as real output

• A change in the money supply only affects nominal variables such as prices and dollar wages. 

  
  

If the money supply grows 5 percent, and real output grows 2 percent, prices should rise by 

• 5 percent. 

  
  

•  Less than 5 percent.

  
  

• More than 5 percent.

Velocity is 

• The annual rate of turnover of the money supply.

• The annual rate of turnover of output. 

  
  

• The annual rate of turnover of business inventories. 

  
  

•  Highly unstable.