Question 1

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A)   high,whether it is expected or not.
B)   low,whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.

Question 2

Which of the following is not implied by the quantity equation?

Accepted Answer

A)   If velocity is stable and money is neutral,an increase in the money supply creates a proportional increase in nominal output.
B)   If velocity is stable and money is neutral,an increase in the money supply creates a proportional increase in the price level.
C)   With constant money supply and output,an increase in velocity creates an increase in the price level.
D)   With constant money supply and velocity,an increase in output creates a proportional increase in the price level.

Question 3

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.

Question 4

If the price level increased from 120 to 126,then what was the inflation rate?

Accepted Answer

A)   3 percent
B)   5 percent
C)   6 percent
D)   None of the above is correct.

Question 5

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

Accepted Answer

nominal va...

Question 6

You put money into an account and earn a real interest rate of 4 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   1.2 percent
B)   2.8 percent
C)   4.8 percent
D)   None of the above is correct.

Question 7

You put money into an account that earns a 8 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 25 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   3 percent
B)   3.75 percent
C)   5 percent
D)   6 percent

Question 8

Which of the following is an example of menu costs?

Accepted Answer

A)   deciding on new prices
B)   printing new price lists
C)   advertising new prices
D)   All of the above are examples of menu costs.

Question 9

Suppose over some period of time the money supply tripled,velocity fell by half,and real GDP doubled.According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old value.

Question 10

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci...

Question 11

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

Accepted Answer

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.

Question 12

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

Accepted Answer

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

Question 13

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Accepted Answer

A)   the inflation rate and real interest rates.
B)   the inflation rate,but not real interest rates.
C)   real interest rates,but not the inflation rate.
D)   neither the inflation rate nor real interest rates.

Question 14

Which of the following is correct?

Accepted Answer

A)   A period of hyperinflation is a period of 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.

Question 15

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time,we see that

Accepted Answer

A)   the price level grew at about the same rate as the money supply.
B)   the price level grew at a much faster rate than the money supply.
C)   the price level grew at a much slower rate than the money supply.
D)   the inflation rate and the money supply growth rate do not appear to be related.

Question 16

Velocity is computed as

Accepted Answer

A)   (PY) /M.
B)   (PM) /Y.
C)   (YM) /P.
D)   (YM) /V.

Question 17

If inflation is higher than what was expected,

Accepted Answer

A)   creditors receive a lower real interest rate than they had anticipated.
B)   creditors pay a lower real interest rate than they had anticipated.
C)   debtors receive a higher real interest rate than they had anticipated.
D)   debtors pay a higher real interest rate than they had anticipated.

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply causes the equilibrium value of money

Accepted Answer

A)   and equilibrium quantity of money to increase.
B)   and equilibrium quantity of money to decrease.
C)   to increase,while the equilibrium quantity of money decreases.
D)   to decrease,while the equilibrium quantity of money increases.

Exam 30: Money Growth and Inflation

You put money into an account that earns a 8 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 25 percent.What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Correct AnswerverifiedA decrease in veloci...View AnswerShow Answer

You put money into an account and earn a real interest rate of 4 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

Correct Answerverifiednominal va...View AnswerShow Answer

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply causes the equilibrium value of money

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation is

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

If inflation is higher than what was expected,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time,we see that

Correct AnswerverifiedShow Answer

Velocity is computed as

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

Correct AnswerverifiedShow Answer

Which of the following is an example of menu costs?

Correct AnswerverifiedShow Answer

If the price level increased from 120 to 126,then what was the inflation rate?

Correct AnswerverifiedShow Answer

Which of the following is correct?

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

Which of the following is not implied by the quantity equation?

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled,velocity fell by half,and real GDP doubled.According to the quantity equation the price level is now

Correct AnswerverifiedShow Answer

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A decrease in veloci...
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nominal va...
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The Fisher effect says that increases in...
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