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Exam 11: Money Growth and Inflation

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Question 61

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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?

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Inflation and nominal interest...

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Question 62

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Suppose that monetary neutrality holds.Of the following variables,which ones do not change when the money supply increases? a.real interest rates b.inflation c.the price level d.real output e.real wages f. nominal wages

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a.real int...

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Question 63

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Identify each of the following as nominal or real variables. a.the physical output of goods and services b.the overall price level c.the dollar price of apples d.the price of apples relative to the price of oranges e.the unemployment rate f. the amount that shows up on your paycheque after taxes g. the amount of goods you can purchase with the wage you get each hour h. the taxes that you pay the government

If the nominal interest rate is 5 percent and the inflation rate is 2 percent,what is the real interest rate?

According to the classical dichotomy,when the money supply doubles,which of the following also double(s) ?

Which of the following best characterizes the effect of inflation?

Which of the following best describes the evolution of the price level in Canada?

When the money market is depicted in a diagram with the value of money on the vertical axis,in which situation does the price level decrease?

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

Define each of the symbols and explain the meaning of M × V = P × Y.

If inflation is more than expected,how are creditors or debtors affected?

You put money in an account and earn a real interest rate of 10 percent.Inflation is 3 percent,and your marginal tax rate is 40 percent.What is your after-tax real interest rate?

When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following best describes the money demand function?

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

Suppose Bob considers borrowing $100 from Sheila at a 10 percent interest rate.They both think that a 4 percent real interest rate would be fair. a)What was the inflation rate they both expected? b)If the inflation rate turned out to be 8 percent,how much was the real interest rate? Who gained and who lost from this transaction,and how much because of unexpected inflation? c)If there was an interest tax of 30 percent,what is the after-tax real interest rate,with the inflation rate of 8 percent?

Inflation induces people to spend more resources maintaining lower money holdings.This is called shoeleather costs.

How is the supply of money determined?

The source of all four classic hyperinflations was high rates of money growth.

The country of Aquilonia has a tax system identical to that of Canada.Suppose an Aquilonian bought a parcel of land for $10 000 in 1960 when the price index equalled 100.In 2013,the person sold the land for $100 000,and the price index equalled 500.If the person must pay 20 percent of any capital gain in taxes,what is the after-tax real capital gain (in 2013 dollars) on the land?

According to the principle of monetary neutrality,which of the following will a decrease in the money supply NOT change?