Money Growth and Inflation

If money is neutral,

• an increase in the money supply does nothing.

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

• a change in the money supply reduces velocity proportionately; therefore there is no effect on either prices or real output.

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

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

In the long run, inflation is caused by

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

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

• none of these answers.

• governments that print too much money.

• increases in the price of inputs, such as labour and oil.

When prices rise at an extraordinarily fast rate, it is called

• a. disinflation.

• b. deflation.

• c. hyperinflation.

• d. inflation.

• e. hypoinflation.

If the price level doubles,

• the quantity demanded of money falls by half.

• the value of money has been cut by half.

• nominal income is unaffected.

• none of these answers.

• the money supply has been cut by half.

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

• the level of prices.

• the interest rate.

• the availability of banking outlets.

• the availability of credit cards.

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

• a proportional increase in prices.

• a proportional increase in real output.

• a proportional decrease in velocity.

• a proportional increase in velocity.

• a proportional decrease in prices.

An example of a real variable is

• the wage rate in euros.

• None of these answers are real variables.

• the price of corn.

• the nominal interest rate.

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

If money is neutral,

• an increase in the money supply does nothing.

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

• a change in the money supply reduces velocity proportionately; therefore there is no effect on either prices or real output.

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

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

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

• 5 per cent.

• more than 5 per cent.

• less than 5 per cent.

• none of these answers.

The velocity of money is

• highly unstable.

• impossible to measure.

• the rate at which money loses its value.hanges hands.

• the rate at which inflation rises.

• the rate at which money c