1- According to the quantity theory, money in the long run affects:

A. the velocity of money.

B. real GDP.

C. prices.

D. none of the above

2- When there is inflation

a. Prices decrease in the economy.

b. The value of the dollar rises on foreign exchange markets.

c. The value of money decreases in the economy.

d. Basic necessities become cheaper

3. Money Demand is the:

a. Amounts of money people are willing to buy at different price levels.

b. Amounts of dollars foreigners are willing to buy with their foreign currency.

c. Amounts of money people are willing to hold at different price levels.

d. Amounts of dollars U.S. citizens are willing to buy with their holdings of foreign currency

4. When the Fed adds more money to the economy, the Money Supply curve shifts to the ________, causing the equilibrium price level to ________.

a. Right, decrease

b. Right, increase

c. Left, decrease

d. Left, increase

5. According to the principle of monetary neutrality:

a. Changes in the money supply do not affect real variables.

b. Real variables do not affect nominal variables.

c. Nominal variables are not adjusted for inflation and real units are adjusted for inflation.

d. Nominal variables are expressed in monetary units and real variables are expressed in physical units.

6. The velocity of money is:

a. The speed at which the money multiplier works.

b. The speed at which prices rise in the economy.

c. The time it takes for checks to be cleared by the Fed.

d. The rate at which money changes hands.

7. If the Fed increased the supply of money, and velocity remains unchanged, according to the quantity equation:

a. P x Y must decrease.

b. Y must decrease.

c. P x Y must increase.

d. Y must increase.

8. When inflation turns out to be higher than expected, borrowers will be ________ off, and lenders will be ________ off.

a. Better, better

b. Better, worse

c. Worse, worse

d. Worse, better

9. Suppose the value of goods and services produced in an economy is $10 billion, but the total money supply is $1 billion, what is the velocity of money?

a. 0

b. 1

c.5

d. 10

10. The quantity theory of money states that:

a. All else equal an increase in money growth will lead to a proportionate increase in prices in the long-run.

b. All else equal an increase in money growth will lead to a proportionate increase in prices in the short-run.

c. An increase in money growth can lead to inflation if and only if velocity is constant.

d. An increase in money growth must lead to a decrease in velocity.

11. In a country with hyperinflation, the value of money

a. Is increasing over time.

b. Is decreasing quickly over time.

c. Is remaining constant.

d. May either be increasing or decreasing.