Question

4. Which of the following statements about monetary neutrality is accurate?

(x) Printing money to finance government expenditures has profound effects on real variables in the long run, but is neutral in the short run.

(y) Although monetary policy is neutral in the long run, it may effect real variables in the short run.

(z) In the long run when money is neutral, nominal interest rates increase when the money supply growth rate increases, but real interest rates do not.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (y) only

3. An increase in the money supply growth rate increases

A. inflation, nominal interest rates, and real interest rates.

B. nominal and real interest rates, but does not change inflation.

C. inflation and real interest rates, but does not change nominal interest rates.

D. inflation and nominal interest rates, but does not change real interest rates.

E. nominal interest rates, but does not change inflation and real interest rates.

Answer 1

a) "D"

Y and Z are correct, printing money to fiance government has no effect on the real variables.

b) "D"

It will increase the nominal rate, inflation and that will not change the real interest rate.