Question 1

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

Accepted Answer

A)  the real interest rate
B)  real GDP
C)  the real wage
D)  the nominal wage.E) A) and C)
F) A) and B)

Question 2

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False

Question 3

If the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?

Accepted Answer

The value ...

Question 4

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A)  His real and nominal salary have risen.
B)  His real and nominal salary have fallen.
C)  His real salary has risen and his nominal salary has fallen.
D)  His real salary has fallen and his nominal salary has risen.E) A) and C)
F) A) and D)

Question 5

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 6

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

Accepted Answer

A)  upward, because at higher prices people want to hold more money.
B)  downward, because at higher prices people want to hold more money.
C)  downward, because at higher price people want to hold less money.
D)  upward, because at higher prices people want to hold less money.E) A) and D)
F) B) and D)

Question 7

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Accepted Answer

A)  The country has high money supply growth.
B)  Inflation is acting like a tax on everyone who holds money.
C)  The government is printing money to finance its expenditures.
D)  All of the above are correct.E) B) and C)
F) B) and D)

Question 8

Wealth is redistributed from debtors to creditors 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.E) All of the above
F) B) and D)

Question 9

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)  affect both nominal and real variables.
B)  affect neither nominal nor real variables.
C)  affect nominal variables, but not real variables.
D)  do not affect nominal variables, but do affect real variables.E) A) and B)
F) None of the above

Question 10

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Accepted Answer

A)  both the price level and real GDP would rise by 5 percent.
B)  the price level would rise by 5 percent and real GDP would be unchanged.
C)  the price level would be unchanged and real GDP would rise by 5 percent.
D)  both the price level and real GDP would be unchanged.E) A) and B)
F) A) and D)

Question 11

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) All of the above
F) B) and C)

Question 12

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 13

Which country is correctly matched with its 2015 inflation rate?

Accepted Answer

A)  9 percent inflation in the United States.
B)  3.6 percent inflation in Russia.
C)  59 percent inflation in Venezuela.
D)  4.9 percent inflation in India.E) A) and C)
F) None of the above

Question 14

The inflation tax

Accepted Answer

A)  transfers wealth from the government to households.
B)  is the increase in real income taxes due to lack of indexation in income tax rules.
C)  is a tax on everyone who holds money.
D)  All of the above are correct.E) A) and B)
F) A) and D)

Question 15

The term hyperinflation refers to

Accepted Answer

A)  the spread of inflation from one country to others.
B)  a decrease in the inflation rate.
C)  a period of very high inflation.
D)  inflation accompanied by a recession.E) A) and D)
F) A) and C)

Question 16

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

Accepted Answer

A)  either money demand or money supply shifts right.
B)  either money demand or money supply shifts left.
C)  money demand shifts right or money supply shifts left.
D)  money demand shifts left or money supply shifts right.E) A) and C)
F) C) and D)

Question 17

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Accepted Answer

A)  increases the price level by more than 4 percent.
B)  increases the price level by 4 percent.
C)  increases the price level by less than 4 percent.
D)  increases real GDP by 4 percent.E) B) and C)
F) All of the above

Question 18

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 19

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Accepted Answer

A)  raised both the price level and the value of gold in Cairo.
B)  raised the price level, but decreased the value of gold in Cairo.
C)  lowered the price level, but increased the value of gold in Cairo.
D)  lowered both the price level and the value of gold in Cairo.E) All of the above
F) None of the above

Question 20

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Exam 30: Money Growth and Inflation

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The classical dichotomy argues that changes in the money supply

Correct AnswerverifiedShow Answer

The term hyperinflation refers to

Correct AnswerverifiedShow Answer

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct AnswerverifiedShow Answer

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Correct AnswerverifiedShow Answer

If the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?

Correct AnswerverifiedThe value ...View AnswerShow Answer

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

Explain how inflation affects savings.

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

Which country is correctly matched with its 2015 inflation rate?

Correct AnswerverifiedShow Answer

Wealth is redistributed from debtors to creditors when inflation is

Correct AnswerverifiedShow Answer

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Correct AnswerverifiedShow Answer

The money demand curve shifts to the left when the Fed buys government bonds.

Correct AnswerverifiedShow Answer

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Correct AnswerverifiedShow Answer

Velocity is

Correct AnswerverifiedShow Answer

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The value ...
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The classical dichotomy argues that nomi...
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Inflation discourages savings. Income ta...
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Correct Answer
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