Question 1

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then

Accepted Answer

A)   when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services.
B)   when the money market is in equilibrium, one unit of goods and services sells for 2 dollars.
C)   there is an excess demand for money if the value of money in terms of goods and services is 0.375.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 2

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t...

Question 3

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Accepted Answer

A)   The price level and velocity are both 8.
B)   The price level is 2 and velocity is 8.
C)   The price level and velocity are both 4.
D)   The price level is 4 and velocity is 8.E) All of the above
F) A) and B)

Question 4

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Accepted Answer

A)   selling bonds on the open market, which would have raised the value of money
B)   purchasing bonds on the open market, which would have raised the value of money.
C)   selling bonds on the open market, which would have raised the value of money.
D)   purchasing bonds on the open market, which would have lowered the value of money.E) A) and B)
F) B) and C)

Question 5

Which of the following is correct?

Accepted Answer

A)   The classical dichotomy separates real and nominal variables.
B)   Monetary neutrality is the proposition that changes in the money supply do not change real variables.
C)   When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 6

The classical theory of inflation

Accepted Answer

A)   is also known as the quantity theory of money.
B)   was developed by some of the earliest economic thinkers.
C)   is used by most modern economists to explain the long-run determinants of the inflation rate.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 7

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Accepted Answer

A)   and a price index are both real variables.
B)   and a price index are both nominal variables.
C)   are real variables, and a price index is a nominal variable.
D)   are nominal variables, and a price index is a real variableE) A) and B)
F) All of the above

Question 8

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in...

Question 9

Open-market purchases by the Fed make the money supply

Accepted Answer

A)   increase, which makes the value of money increase.
B)   increase, which makes the value of money decrease.
C)   decrease, which makes the value of money decrease.
D)   decrease, which makes the value of money increase.E) None of the above
F) A) and D)

Question 10

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)   Friedman Effect.
B)   Hume Effect.
C)   Fisher Effect.
D)   the inflation tax.E) A) and B)
F) B) and D)

Question 11

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) A) and C)
F) C) and D)

Question 12

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 2.5 percent; the tax rate is 25 percent.
B)   Inflation is 3 percent; the tax rate is 20 percent.
C)   Inflation is 2 percent; the tax rate is 30 percent.
D)   The after-tax real interest rate is the same for all of the above.E) A) and B)
F) B) and C)

Question 13

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Accepted Answer

A)   the price level and the value of money rise.
B)   the price level rises and the value of money falls.
C)   the price level falls and the value of money rises.
D)   the price level and the value of money fall.E) None of the above
F) B) and C)

Question 14

The shoeleather cost of inflation refers to

Accepted Answer

A)   the redistributional effects of unexpected inflation.
B)   the time spent searching for low prices when inflation rises.
C)   the waste of resources used to maintain lower money holdings.
D)   the increased cost to the government of printing more money.E) A) and B)
F) A) and C)

Question 15

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Accepted Answer

A)   135
B)   132
C)   125
D)   121E) A) and B)
F) All of the above

Question 16

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 17

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 18

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 19

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 20

The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera the local currency)  in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)   -20 percent
B)   20 percent
C)   42 percent
D)   64 percentE) A) and D)
F) B) and C)

Exam 12: Money Growth and Inflation

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Correct Answer
verified
Typically, the government in countries t...
View Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct Answer
verified

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct Answer
verified
Inflation and nominal interest...
View Answer

An excess supply of money is eliminated by a falling price level

Correct Answer
verified

The classical theory of inflation

Correct Answer
verified

Open-market purchases by the Fed make the money supply

Correct Answer
verified

Correct Answer
verified

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct Answer
verified

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Correct Answer
verified
The Fisher effect says that increases in...
View Answer

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Correct Answer
verified

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then

Correct Answer
verified

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Correct Answer
verified

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

The shoeleather cost of inflation refers to

Correct Answer
verified

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Correct Answer
verified

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Correct Answer
verified

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Correct Answer
verified

Exam 12: Money Growth and Inflation

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically, the government in countries t...View AnswerShow Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

An excess supply of money is eliminated by a falling price level

Correct AnswerverifiedShow Answer

The classical theory of inflation

Correct AnswerverifiedShow Answer

Open-market purchases by the Fed make the money supply

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Correct AnswerverifiedShow Answer

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then

Correct AnswerverifiedShow Answer

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

The shoeleather cost of inflation refers to

Correct AnswerverifiedShow Answer

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Correct AnswerverifiedShow Answer

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Correct AnswerverifiedShow Answer

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Correct AnswerverifiedShow Answer

Correct Answer
verified
Typically, the government in countries t...
View Answer

Correct Answer
verified

Correct Answer
verified
Inflation and nominal interest...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Fisher effect says that increases in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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