Question

1. During the 1970s, the velocity of money, as measured by M1, was:

a. relatively constant.

b. grew at a relatively constant rate.

c. fell at a relatively constant rate.

d. was very erratic, rising and falling but higher at the end of the 1970s.

e. was very erratic, rising and falling but lower at the end of the 1970s.

2. Monetary policy can affect the price level:

a. in both the short run and the long run.

b. neither in the short run nor the long run.

c. only in the short run.

d. only in the long run.

3. Money illusion arises when:

a. workers work harder when they know that layoffs are increasing.

b. workers work harder when inflation has raised their nominal wage, even though their real wage is lower.

c. workers work harder when they think their wages have fallen.

d. workers are paid in a unit of account that is different from the medium of exchange.

e. All of the above.

4. According to Smiley, which of the following is true about U.S. economic performance during World War II?

a. Unemployment fell and leveled off at about 5%.

b. Measured inflation was low, in part because of price controls and rationing.

c. The money supply grew by about 1% per year, keeping inflation low.

d. While the official data shows that consumption fell, Smiley calls that “suspect” and argues that in fact it rose significantly.

e. All of the above.

Answer 1

Answer 1.b. grew at a relatively constant rate.

reason- Velocity of money was relatively constantly growing during 1970s.

Answer 2.. in both the short run and the long run.

reason- Monetary policy affects price level in both short and long run.

Answer 3. b. workers work harder when inflation has raised their nominal wage, even though their real wage is lower.

reason-

Answer 4. all of the above

reason- After war, the US econony grew as the consumption demand rose, inflation fell and unemployment fell duw to increased demand for labor