Question 1

Interest rates adjusted for the effects of inflation

Accepted Answer

A)   and inflation are nominal variables.
B)   and inflation are real variables.
C)   are real variables;inflation is a nominal variable.
D)   are nominal variables;inflation is a real variable.E) A) and B)
F) All of the above

Question 2

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 3

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases,there is...

Question 4

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) B) and C)
F) B) and D)

Question 5

When we assume that the supply of money is a variable that the central bank controls,we

Accepted Answer

A)   must then assume as well that the demand for money is not influenced by the value of money.
B)   must then assume as well that the price level is unrelated to the value of money.
C)   are ignoring the fact that,in the real world,households are suppliers of money also.
D)   are ignoring the complications introduced by the role of the banking system.E) A) and B)
F) A) and C)

Question 6

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 7

When the price level rises,the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)   increases,and so the value of money rises.
B)   increases,and so the value of money falls.
C)   decreases,and so the value of money rises.
D)   decreases,and so the value of money fallsE) B) and C)
F) A) and D)

Question 8

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)   increase employment.
B)   increase the price level.
C)   increase the incentive to save.
D)   not increase any of the above.E) All of the above
F) B) and C)

Question 9

Economists agree that

Accepted Answer

A)   neither high inflation nor moderate inflation is very costly.
B)   both high and moderate inflation are quite costly.
C)   high inflation is costly,but they disagree about the costs of moderate inflation.
D)   moderate inflation is as costly as high inflation.E) B) and D)
F) B) and C)

Question 10

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1 to MS2? A)  an increase in the value of money B)  a decrease in the price level C)  an open-market purchase of bonds by the Federal Reserve D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   None of the above is correct.E) B) and D)
F) A) and B)

Question 11

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is correct?

Accepted Answer

A)   A period of hyperinflation is a period of extraordinarily high or extraordinarily low inflation.
B)   A period of deflation is any period during which the inflation rate is decreasing.
C)   During the 1990s,U.S.inflation averaged about 2 percent per year.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 13

When inflation rises,people tend to go to the bank

Accepted Answer

A)   more often,giving rise to menu costs.
B)   more often,giving rise to shoeleather costs.
C)   less often,giving rise to redistribution costs.
D)   less often,thereby lessening the severity of the inflation tax.E) C) and D)
F) None of the above

Question 14

The value of money falls as the price level

Accepted Answer

A)   rises,because the number of dollars needed to buy a representative basket of goods rises.
B)   rises,because the number of dollars needed to buy a representative basket of goods falls.
C)   falls,because the number of dollars needed to buy a representative basket of goods rises.
D)   falls,because the number of dollars needed to buy a representative basket of goods falls.E) B) and C)
F) A) and D)

Question 15

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)   the quantity theory and evidence from four hyperinflations during the 1920's
B)   the quantity theory but not evidence from four hyperinflations during the 1920's
C)   evidence from four hyperinflations during the 1920's but not the quantity theory
D)   neither the quantity theory nor evidence from four hyperinflation during the 1920'sE) B) and C)
F) A) and D)

Question 16

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent;the tax rate is 20 percent.
B)   Inflation is 2 percent;the tax rate is 40 percent.
C)   Inflation is 1 percent;the tax rate is 60 percent.
D)   The after-tax real interest rate is the same for all of the above.E) B) and D)
F) A) and D)

Question 17

The inflation tax falls mostly heavily on

Accepted Answer

A)   those who hold a lot of currency and accounts for a large share of U.S.government revenue.
B)   those who hold a lot of currency but accounts for a small share of U.S.government revenue.
C)   those who hold little currency and accounts for a large share of U.S.government revenue.
D)   those who hold little currency but accounts for a small share of U.S.government revenue.E) B) and C)
F) A) and C)

Question 18

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Accepted Answer

A)   increases the price level by more than 5 percent.
B)   increases the price level by 5 percent.
C)   increases the price level by 5 percent
D)   does not change the price level.E) A) and D)
F) A) and C)

Question 19

A rising price level eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 20

The country of Lessidinia has a tax system identical to that of the United States.Suppose someone in Lessidinia bought a parcel of land for 20,000 foci (the local currency) in 1960 when the price index equaled 100.In 2002,the person sold the land for 100,000 foci,and the price index equaled 600.The tax rate on nominal gains was 20 percent.Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)   -60 percent
B)   -30 percent
C)   30 percent
D)   60 percentE) A) and B)
F) A) and C)

Exam 30: Money Growth and Inflation

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Correct Answer
verified

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct Answer
verified

Interest rates adjusted for the effects of inflation

Correct Answer
verified

Correct Answer
verified

When we assume that the supply of money is a variable that the central bank controls,we

Correct Answer
verified

The inflation tax falls mostly heavily on

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

When inflation rises,people tend to go to the bank

Correct Answer
verified

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Correct Answer
verified
When the money supply increases,there is...
View Answer

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Correct Answer
verified

A rising price level eliminates an excess supply of money.

Correct Answer
verified

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Correct Answer
verified

When the price level rises,the number of dollars needed to buy a representative basket of goods

Correct Answer
verified

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Correct Answer
verified

The value of money falls as the price level

Correct Answer
verified

Monetary neutrality implies that an increase in the quantity of money will

Correct Answer
verified

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct Answer
verified

Economists agree that

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

Exam 30: Money Growth and Inflation

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Correct AnswerverifiedShow Answer

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct AnswerverifiedShow Answer

Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When we assume that the supply of money is a variable that the central bank controls,we

Correct AnswerverifiedShow Answer

The inflation tax falls mostly heavily on

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

When inflation rises,people tend to go to the bank

Correct AnswerverifiedShow Answer

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Correct AnswerverifiedWhen the money supply increases,there is...View AnswerShow Answer

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Correct AnswerverifiedShow Answer

A rising price level eliminates an excess supply of money.

Correct AnswerverifiedShow Answer

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Correct AnswerverifiedShow Answer

When the price level rises,the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Correct AnswerverifiedShow Answer

The value of money falls as the price level

Correct AnswerverifiedShow Answer

Monetary neutrality implies that an increase in the quantity of money will

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

Economists agree that

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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When the money supply increases,there is...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

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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Correct Answer
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