Question

5. Suppose in the United States economy, the rate of money growth for the current year is 8 percent, the velocity of money in circulation is constant, and inflation is expected to be about 2 percent over the current year. What is the short run economic growth rate?

A) 16 percent

B) 10 percent

C) 8 percent

D) 6 percent

E) 4 percent

8. The fisher effect matters in terms of inflation given that

A) borrowers agree to loan terms with uncertain information about future inflation

B) lenders set nominal interest rates with a forecast for future inflation, which may or may not be correct.

C) redistribution can take place when unexpected changes to inflation occurs.

D) A&B only

E) All of the above

9. If your real wages are decreasing although you have received salary raises each year,

A) you should quit your job

B) your purchasing power is decreasing

C) the rate of inflation is likely decreasing

D) your nominal wages are rising faster than inflation

E) none of the above

14. Holding velocity growth and GDP growth constant is generally a long run concept. What is one conceptual takeaway if a central bank has plans to consistently increase money supply in the long run?

A) There will be higher levels of economic growth

B) This activity will likely only lead to higher inflation

C) There will be higher levels of GDP
D) This activity will lead to lower levels of inflation.

16. The Consumer Price Index (CPI)

A) Is commonly used to determine changes in purchasing power for the average citizen.

B) Will be lower than 100 if prices have risen since the base year.

C) Can only range from 0 to 100 for all years of prices.

D) is the only price index available to adjust or inflation.

Answer 1

Q.7.

The Equation of Exchange МxV 3 РxY Where M is the quantity of money V is the velocity of circulation P is the price level Y is real GDP

Taking log both sides and differentiating, we get:

AP + P AM +

AY 8+0 2+ 6%

Correct Ans - D