Question 1

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 C)
F) A) and D)

Question 2

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Accepted Answer

A)  both the upward trend in real GDP and the upward trend in the price level
B)  the upward trend in real GDP but not the upward trend in the price level
C)  the upward trend in the price level but not the upward trend in real GDP
D)  neither the upward trend in the price level nor the upward trend in real GDPE) C) and D)
F) B) and D)

Question 3

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

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

Accepted Answer

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

Question 6

Figure 17-2. 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 17-2. 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) None of the above

Question 7

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation

Accepted Answer

A)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) B) and C)
F) B) and D)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010? A) -33 percent B) 17 percent C) 50 percent D) 67 percent" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-3. At the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)  -33 percent
B)  17 percent
C)  50 percent
D)  67 percentE) A) and D)
F) B) and C)

Question 10

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 C)
F) B) and D)

Question 11

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. What are the price level and velocity in Muckland?

Accepted Answer

A)  The price level and velocity are both 8.
B)  The price level is 2 and velocity is 8.
C)  The price level and velocity are both 4.
D)  The price level is 4 and velocity is 8.E) C) and D)
F) A) and C)

Question 12

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

Accepted Answer

A)  the price level and nominal wages
B)  the price level, but not the nominal wage
C)  the nominal wage, but not the price level
D)  neither the nominal wage nor the price levelE) All of the above
F) None of the above

Question 13

The price of a Honda Accord

Accepted Answer

A)  and the price of a Honda Accord divided by the price of a Honda Civic are both real variables.
B)  and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables.
C)  is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable.
D)  is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.E) A) and D)
F) B) and C)

Question 14

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 15

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 3 percent; the tax rate is 25 percent.
B)  Inflation is 2 percent; the tax rate is 50 percent.
C)  Inflation is 1 percent; the tax rate is 75 percent.
D)  The after-tax real interest rate is the same for all of the above.E) B) and C)
F) A) and B)

Question 16

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1, then the equilibrium price level is A) 0.5 and the equilibrium value of money is 2. B) 2 and the equilibrium value of money is 0.5. C) 0.5 and the equilibrium value of money cannot be determined from the graph. D) 2 and the equilibrium value of money cannot be determined from the graph." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

Accepted Answer

A)  0.5 and the equilibrium value of money is 2.
B)  2 and the equilibrium value of money is 0.5.
C)  0.5 and the equilibrium value of money cannot be determined from the graph.
D)  2 and the equilibrium value of money cannot be determined from the graph.E) A) and B)
F) A) and C)

Question 17

Higher inflation

Accepted Answer

A)  causes firms to change prices less frequently and makes relative prices less variable.
B)  causes firms to change prices less frequently and makes relative prices more variable.
C)  causes firms to change prices more frequently and makes relative prices less variable.
D)  causes firms to change prices more frequently and makes relative prices more variable.E) B) and C)
F) A) and D)

Question 18

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Accepted Answer

A)  .03(1-.20) 
B)  .04(1 -.20) 
C)  .04(1 - .20)  - .01
D)  None of the above is correct.E) A) and C)
F) None of the above

Question 19

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

Accepted Answer

M is the quantity of money, V is the vel...

Question 20

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) All of the above

Exam 17: Money Growth and Inflation

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Correct Answer
verified

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation

Correct Answer
verified

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS₁, then the equilibrium price level is

Correct Answer
verified

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

Correct Answer
verified

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD₁, then

Correct Answer
verified

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 Answer
verified

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Correct Answer
verified

Higher inflation

Correct Answer
verified

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Correct Answer
verified

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Correct Answer
verified

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 Answer
verified

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. What are the price level and velocity in Muckland?

Correct Answer
verified

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

Correct Answer
verified

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

The price of a Honda Accord

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

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

Correct Answer
verified

Relative-price variability

Correct Answer
verified

Correct Answer
verified

Exam 17: Money Growth and Inflation

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD1, then

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

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Correct AnswerverifiedShow Answer

Higher inflation

Correct AnswerverifiedShow Answer

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

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

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. What are the price level and velocity in Muckland?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

The price of a Honda Accord

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedM is the quantity of money, V is the vel...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Relative-price variability

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS₁, then the equilibrium price level is

Correct Answer
verified

Correct Answer
verified

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD₁, then

Correct Answer
verified

Correct Answer
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Correct Answer
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M is the quantity of money, V is the vel...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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