Question 1

If the price level increased from 200 to 250,then what was the inflation rate?

Accepted Answer

A)   50 percent
B)   25 percent
C)   20 percent
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 2

You bought some shares of stock and,over the next year,the price per share decreased by 7 percent and the price level decreased by 9 percent.Before taxes,you experienced

Accepted Answer

A)   both a nominal gain and a real gain.
B)   a nominal gain and a real loss.
C)   a nominal loss and a real gain.
D)   both a nominal loss and a real loss.E) A) and B)
F) A) and C)

Question 3

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 4

When inflation falls,people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.E) All of the above
F) A) and D)

Question 5

Suppose there is a surplus in the money market.

Accepted Answer

A)   This could have been created by an increase in the money supply.The value of money will rise.
B)   This could have been created by an increase in the money supply.The value of money will fall.
C)   This could have been created by a decrease in the money supply.The value of money will rise.
D)   This could have been created by a decrease in the money supply.The value of money will fall.E) All of the above
F) A) and B)

Question 6

Suppose the nominal interest rate is 5 percent,the tax rate on interest income is 30 percent,and the after-tax real interest rate is 2.1percent.Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 7

Velocity is

Accepted Answer

A)   Y/(M x P) and increases if dollars are exchanged less frequently.
B)   Y/(M x P) and increases if dollars are exchanged more frequently.
C)   (P x Y) /M and increases if dollars are exchanged less frequently.
D)   (P x Y) /M and increases if dollars are exchanged more frequently.E) B) and C)
F) A) and D)

Question 8

Most economists believe the principle of monetary neutrality is

Accepted Answer

A)   relevant to both the short and long run.
B)   irrelevant to both the short and long run.
C)   mostly relevant to the short run.
D)   mostly relevant to the long run.E) A) and C)
F) A) and B)

Question 9

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) None of the above
F) A) and C)

Question 10

When money is neutral,which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price levelE) C) and D)
F) All of the above

Question 11

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Accepted Answer

A)   unemployment
B)   the price level
C)   nominal interest rates
D)   All of the above are correct.E) C) and D)
F) All of the above

Question 12

According to the classical dichotomy,when the money supply doubles,which of the following also doubles?

Accepted Answer

A)   the price level
B)   nominal wages
C)   nominal GDP
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 13

When the value of money is on the vertical axis,the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 14

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Accepted Answer

A)   both the nominal and the real interest rate fall.
B)   neither the nominal nor the real interest rate fall.
C)   the nominal interest rate falls,but the real interest rate does not.
D)   the real interest rate falls,but the nominal interest rate does not.E) All of the above
F) A) and B)

Question 15

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 16

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 17

If inflation is higher than expected,then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 18

The price level falls.This might be because the Federal Reserve

Accepted Answer

A)   bought bonds which raised the money supply.
B)   bought bonds which reduced the money supply.
C)   sold bonds which raised the money supply.
D)   sold bonds which reduced the money supply.E) A) and B)
F) C) and D)

Question 19

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Accepted Answer

A)   velocity concept.
B)   Fisher effect.
C)   classical dichotomy.
D)   Mankiw effect.E) None of the above
F) A) and B)

Question 20

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings.Income tax...

Exam 30: Money Growth and Inflation

Suppose the nominal interest rate is 5 percent,the tax rate on interest income is 30 percent,and the after-tax real interest rate is 2.1percent.Then the inflation rate is 2 percent.

Correct AnswerverifiedShow Answer

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Correct AnswerverifiedShow Answer

The classical theory of inflation

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis,the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

According to the classical dichotomy,when the money supply doubles,which of the following also doubles?

Correct AnswerverifiedShow Answer

Most economists believe the principle of monetary neutrality is

Correct AnswerverifiedShow Answer

When inflation falls,people

Correct AnswerverifiedShow Answer

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Correct AnswerverifiedShow Answer

When money is neutral,which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

The price level falls.This might be because the Federal Reserve

Correct AnswerverifiedShow Answer

If inflation is higher than expected,then lenders receive interest payments whose real values are less than they expected.

Correct AnswerverifiedShow Answer

Velocity is

Correct AnswerverifiedShow Answer

You bought some shares of stock and,over the next year,the price per share decreased by 7 percent and the price level decreased by 9 percent.Before taxes,you experienced

Correct AnswerverifiedShow Answer

Suppose there is a surplus in the money market.

Correct AnswerverifiedShow Answer

Nominal GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Correct AnswerverifiedShow Answer

If the price level increased from 200 to 250,then what was the inflation rate?

Correct AnswerverifiedShow Answer

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings.Income tax...View AnswerShow Answer

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Inflation discourages savings.Income tax...
View Answer