Question 1

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Accepted Answer

A)  both interest income and capital gains.
B)  interest income but not capital gains.
C)  capital gains but not interest income.
D)  neither interest income nor capital gains.E) A) and B)
F) A) and C)

Question 2

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 3

Which of the following is accurate?

Accepted Answer

A)  Monetary policy is neutral in both the short run and the long run.
B)  Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
C)  Monetary policy has profound effects on real variables in both the short run and the long run.
D)  Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.E) C) and D)
F) B) and D)

Question 4

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A)  People who held money would feel poorer.
B)  Prices would rise.
C)  People who had lent money at a fixed interest rate would feel poorer.
D)  All of the above are correct.E) A) and D)
F) B) and C)

Question 5

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Accepted Answer

rise, exce...

Question 6

When Haley states that inflation by itself always reduces the real return on her saving, she

Accepted Answer

A)  has expressed the idea of the inflation tax.
B)  has expressed the idea behind menu costs.
C)  has committed the inflation fallacy.
D)  has expressed the idea behind shoeleather costs.E) None of the above
F) B) and C)

Question 7

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A)  falls to half its original level.
B)  doubles.
C)  more than doubles.
D)  does not change.E) B) and C)
F) None of the above

Question 8

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Accepted Answer

A)  increases, so the quantity of money demanded increases.
B)  increases, so the quantity of money demanded decreases.
C)  decreases, so the quantity of money demanded decreases.
D)  decreases, so the quantity of money demanded increases.E) All of the above
F) B) and C)

Question 9

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

Accepted Answer

A)  8.
B)  0.5.
C)  2.
D)  3.E) A) and D)
F) A) and C)

Question 10

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 11

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars.
B)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars.
C)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) C) and D)
F) A) and C)

Question 12

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.E) A) and C)
F) A) and B)

Question 13

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1, then 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." class="answers-bank-image d-inline" rel="preload" >
-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) A) and B)
F) A) and C)

Question 14

Relative-price variability

Accepted Answer

A)  rises with inflation, leading to an improved allocation of resources.
B)  rises with inflation, leading to a misallocation of resources.
C)  falls with inflation, leading to an improved allocation of resources.
D)  falls with inflation, leading to a misallocation of resources.E) A) and D)
F) C) and D)

Question 15

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 16

According to the quantity theory of money, a 3 percent increase in the money supply

Accepted Answer

A)  causes the price level to rise by 3 percent.
B)  causes the price level to rise by less than 3 percent.
C)  leaves the price level unchanged.
D)  causes the price level to fall by 3 percent.E) B) and D)
F) C) and D)

Question 17

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 18

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)  1/P represents the value of money measured in terms of goods and services.
B)  P can be interpreted as the inflation rate.
C)  the supply of money influences the value of P, but the demand for money does not.
D)  All of the above are correct.E) None of the above
F) A) and D)

Question 19

A reduction in the inflation rate would make relative prices

Accepted Answer

A)  less variable, making it more likely that resources will be allocated to their best use.
B)  less variable, making it less likely that resources will be allocated to their best use.
C)  more variable, making it more likely that resources will be allocated to their best use.
D)  more variable, making it less likely that resources will be allocated to their best use.E) B) and C)
F) A) and D)

Question 20

In the presence of inflation in the U.S., accountants incorrectly measure firms' earnings but the tax code correctly measures real incomes.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =

Correct AnswerverifiedShow Answer

If Y and M are constant and V doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Correct Answerverifiedrise, exce...View AnswerShow Answer

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Correct AnswerverifiedShow Answer

According to the quantity theory of money, a 3 percent increase in the money supply

Correct AnswerverifiedShow Answer

In the presence of inflation in the U.S., accountants incorrectly measure firms' earnings but the tax code correctly measures real incomes.

Correct AnswerverifiedShow Answer

If P denotes the price of goods and services measured in terms of money, then

Correct AnswerverifiedShow Answer

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Correct AnswerverifiedShow Answer

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

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

Which of the following is accurate?

Correct AnswerverifiedShow Answer

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Correct AnswerverifiedShow Answer

Relative-price variability

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

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

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

Correct AnswerverifiedShow Answer

When Haley states that inflation by itself always reduces the real return on her saving, she

Correct AnswerverifiedShow Answer

A reduction in the inflation rate would make relative prices

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

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In the long run an increase in the money supply causes the price level to . The price level moves in this direction because an increase in the money supply creates in the money market that causes people to spending.

Correct Answer
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rise, exce...
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Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

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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

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