ECON 1040 CH 12 QUESTION AND CORRECT ANSWER

ECON 1040 CH 12 QUESTION AND CORRECT ANSWER . 1. Suppose an economy produces only ice cream cones. If the price level rises, the value of currency a. rises, because one unit of currency buys more ice cream cones. b. rises, because one unit of currency buys fewer ice cream cones. c. falls, because one unit of currency buys more ice cream cones. d. falls, because one unit of currency buys fewer ice cream cones. - ANSWER 1. ANSWER: D 2. If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be interpreted as the inflation rate. c. the supply of money influences the value of P, but the demand for money does not. d. All of the above are correct. - ANSWER 2. ANSWER: A 3. When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded decreases. d. decreases, so the quantity of money demanded increases. - ANSWER 3. ANSWER: B 4. Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess a. demand for money that is represented by the distance between points A and C. b. demand for money that is represented by the distance between points A and B. c. supply of money that is represented by the distance between points A and C. d. supply of money that is represented by the distance between points A and B. - ANSWER 4. ANSWER: D 5. Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2, a. the equilibrium value of money decreases. b. the equilibrium price level decreases. c. the supply of money has decreased. d. the demand for goods and services will decrease. - ANSWER 5. ANSWER: A 6. Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is a. 0.5 and the equilibrium value of money is 2. b. 2 and the equilibrium value of money is 0.5. c. 0.5 and the equilibrium value of money cannot be determined from the graph. d. 2 and the equilibrium value of money cannot be determined from the graph. - ANSWER 6. ANSWER: B 7. Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then a. when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. b. when the money market is in equilibrium, one unit of goods and services sells for 33 cents. c. there is an excess demand for money if the value of money in terms of goods and services is 0.5. d. All of the above are correct. - ANSWER 7. ANSWER: A 8. Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is a. 0.5 and the equilibrium price level is 2. b. 2 and the equilibrium price level is 0.5. c. 0.5 and the equilibrium price level cannot be determined from the graph. d. 2 and the equilibrium price level cannot be determined from the graph. - ANSWER 8. ANSWER: A 9. The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments. a. The dollar amount you pay is a nominal value. The number of goods you give up is a real value. b. The dollar amount you pay is a real value. The number of goods you give up is a nominal value. c. Both the dollar amount you pay and the goods you give up are nominal values. d. Both the dollar amount you pay and the goods you give up are real values. - ANSWER 9. ANSWER: A 10. An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year. a. His real and nominal salary have risen. b. His real and nominal salary have fallen. c. His real salary has risen and his nominal salary has fallen. d. His real salary has fallen and his nominal salary has risen. - ANSWER 10. ANSWER: D 11. Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes a. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. b. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. c. your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. d. your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased. - ANSWER 11. ANSWER: A 12. According to the classical dichotomy, when the money supply doubles, which of the following also doubles? a. the price level and nominal wages b. the price level, but not the nominal wage c. the nominal wage, but not the price level d. neither the nominal wage nor the price level - ANSWER 12. ANSWER: A 13. Most economists believe the principle of monetary neutrality is a. relevant to both the short and long run. b. irrelevant to both the short and long run. c. mostly relevant to the short run. d. mostly relevant to the long run. - ANSWER 13. ANSWER: D 14. Which of the following is