Question 1

Real GDP measures output of final goods and services in physical units.

Accepted Answer

A) True 
 B)False

Question 2

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 3

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 4

According to the assumptions of the quantity theory of money, if the money supply decreases by 4 percent, then

Accepted Answer

A)  nominal and real GDP would fall by 4 percent.
B)  nominal GDP would fall by 4 percent; real GDP would be unchanged.
C)  nominal GDP would be unchanged; real GDP would fall by 0.40 percent.
D)  neither nominal GDP nor real GDP would change.E) B) and C)
F) B) and D)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Accepted Answer

The answer of In the early 1920s U.S. consumer prices...

Question 7

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Accepted Answer

A) True 
 B)False

Question 8

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)  increases the real interest rate and the after-tax real rate of interest.
B)  increases the Real interest rate and the after-tax real rate of interest.
C)  does not change the real interest rate but raises the after tax real rate of interest.
D)  does not change the real interest rate but reduces the after-tax real rate of interest.E) C) and D)
F) None of the above

Question 9

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

Accepted Answer

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

Question 10

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was

Accepted Answer

A)  10 percent and the inflation rate was 6 percent.
B)  6 percent and the inflation rate was 2 percent.
C)  4 percent and the inflation rate was 2 percent.
D)  10 percent and the inflation rate was 4 percent.E) A) and B)
F) All of the above

Question 11

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 12

When the Consumer Price Index increases from 100 to 115

Accepted Answer

A)  more money is needed to buy the same amount of goods, so the value of money falls.
B)  more money is needed to buy the same amount of goods, so the value of money rises.
C)  less money is needed to buy the same amount of goods, so the value of money falls.
D)  less money is needed to buy the same amount of goods, so the value of money rises.E) A) and C)
F) A) and B)

Question 13

Economists generally argue that

Accepted Answer

A)  neither high inflation nor moderate inflation is very costly.
B)  costs of both high and moderate inflation are quite large.
C)  high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes.
D)  costs of moderate inflation are nearly zero whereas high inflation is quite costly.E) A) and D)
F) B) and D)

Question 14

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 15

Figure 30-1 2 and the value of money is 4, then there is an excess A) demand for money that is represented by the distance between points B and D. B) demand for money that is represented by the distance between points B and C. C) supply of money that is represented by the distance between points B and D. D) supply of money that is represented by the distance between points B and C." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 4, then there is an excess

Accepted Answer

A)  demand for money that is represented by the distance between points B and D.
B)  demand for money that is represented by the distance between points B and C.
C)  supply of money that is represented by the distance between points B and D.
D)  supply of money that is represented by the distance between points B and C.E) None of the above
F) B) and C)

Question 16

Suppose a burger costs $6. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)  $16.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold more dollars.
B)  $50.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
C)  10 burgers.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)  50 burgers.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) B) and C)
F) A) and C)

Question 17

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 18

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 19

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Accepted Answer

The after- tax nominal interes...

Question 20

The hyperinflation in Zimbabwe ended in April 2009 when the central bank purchased government bonds in open-market operations.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

Suppose a burger costs $6. Molly holds $60. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

Hyperinflations are associated with governments printing money to finance expenditures.

Correct AnswerverifiedShow Answer

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct AnswerverifiedShow Answer

The hyperinflation in Zimbabwe ended in April 2009 when the central bank purchased government bonds in open-market operations.

Correct AnswerverifiedShow Answer

The inflation rate is measured as the percentage change in a price index.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Correct AnswerverifiedThe after- tax nominal interes...View AnswerShow Answer

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 4, then there is an excess

Correct AnswerverifiedShow Answer

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Correct AnswerverifiedShow Answer

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was

Correct AnswerverifiedShow Answer

Dollar prices and relative prices are both nominal variables.

Correct AnswerverifiedShow Answer

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Correct AnswerverifiedShow Answer

Economists generally argue that

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

When the Consumer Price Index increases from 100 to 115

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply decreases by 4 percent, then

Correct AnswerverifiedShow Answer

Real GDP measures output of final goods and services in physical units.

Correct AnswerverifiedShow Answer

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The after- tax nominal interes...
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Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 4, then there is an excess

Correct Answer
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In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

Correct Answer
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Inflation and nominal interest...
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