Question

When the money demand curve shifts right and the money supply is unchanged, the equilibrium price level decreases and the equilibrium value of money increases.

true

false

The money supply in Grayfield is $8 billion. Nominal GDP is $32 billion and real GDP is $24 billion. The central bank of Grayfield has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 2.5 percent this year then the central bank of Grayfield will increase the money supply by 2.5 percent

true

false

The Classical Dichotomy refers to the idea that money determines nominal variables such as nominal GDP and nominal wages, but not real variables such as real GDP and the real interest rate

true

false

As the economy experiences inflation, people will want to hold more money as a medium of exchange because the value of money is lower.

true

false

When the money demand curve shifts left and the money supply shifts right the equilibrium price level decreases and the equilibrium value of money increases.

true

false

Answer 1

a) True, as this will increase the interest rate and lower the demand and increase the value of money.

b) True, to keep the inflation neutral the money supply and the GDP should be the same.

c) False, money determines the real value and not the nominal value.

d) False, the higher the inflation the lower the money they will hold.

e) False, the interest rate will fall and the equilibrium value of money will fall.