Question 1

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 3

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Accepted Answer

A)  both the nominal and the real interest rate fall.
B)  neither the nominal nor the real interest rate fall.
C)  the nominal interest rate falls, but the real interest rate does not.
D)  the real interest rate falls, but the nominal interest rate does not.E) B) and C)
F) B) and D)

Question 4

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A)  both a nominal gain and a real gain.
B)  a nominal gain and a real loss.
C)  a nominal loss and a real gain.
D)  both a nominal loss and a real loss.E) None of the above
F) A) and D)

Question 5

If the Fed increases the money supply, then 1/P

Accepted Answer

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

Question 6

Velocity is computed as

Accepted Answer

A)  (PY) /M.
B)  (PM) /Y.
C)  (YM) /P.
D)  (YM) /V.E) None of the above
F) A) and C)

Question 7

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 8

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 9

The inflation tax

Accepted Answer

A)  is an alternative to income taxes and government borrowing.
B)  taxes most those who hold the most money.
C)  is the revenue created when the government prints money.
D)  All of the above are correct.E) B) and C)
F) None of the above

Question 10

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A)  Steve had both the higher before-tax real gain and the higher after-tax real gain.
B)  Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
C)  Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain.
D)  Stephanie had both the higher before-tax real gain and the higher after-tax real gain.E) C) and D)
F) A) and D)

Question 11

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Accepted Answer

A)  will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
B)  will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.
C)  will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
D)  will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.E) C) and D)
F) B) and C)

Question 12

If P = 4 and Y = 450, then which of the following pairs of values are possible?

Accepted Answer

A)  M = 800, V = 4
B)  M = 600, V =3
C)  M = 400, V =2
D)  M = 200, V =1E) All of the above
F) B) and C)

Question 13

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Accepted Answer

A) True 
 B)False

Question 14

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Accepted Answer

A)  $50
B)  $75
C)  $100
D)  $200E) A) and B)
F) A) and C)

Question 15

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 C)

Question 16

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 to MD2? A) an increase in the value of money B) a decrease in the price level C) an open-market purchase of bonds by the Federal Reserve D) None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  an increase in the value of money
B)  a decrease in the price level
C)  an open-market purchase of bonds by the Federal Reserve
D)  None of the above is correct.E) B) and C)
F) All of the above

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

When the money market is drawn with the value of money on the vertical axis, the price level increases 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) None of the above
F) A) and B)

Question 19

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the following is 2?

Accepted Answer

A)  The price level and velocity
B)  the price level but not velocity
C)  the price level and velocity.
D)  neither the price level nor velocityE) None of the above
F) A) and B)

Question 20

Serena purchased 10 shares of GLC, Inc.stock for $200 per share; one year later she sold the 10 shares for $220 a share. Over the year, the price level increased from 135.0 to 143.1. The tax rate on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Serena pay on her gain?

Accepted Answer

A)  $90
B)  $95
C)  $100
D)  None of the above is correct.E) B) and C)
F) A) and C)

Exam 17: Money Growth and Inflation

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Correct Answer
verified

If P = 4 and Y = 450, then which of the following pairs of values are possible?

Correct Answer
verified

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Correct Answer
verified

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

Correct Answer
verified

An excess supply of money is eliminated by a falling price level

Correct Answer
verified

If the Fed increases the money supply, then 1/P

Correct Answer
verified

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

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. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
verified

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Correct Answer
verified

The inflation tax

Correct Answer
verified

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Correct Answer
verified

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the following is 2?

Correct Answer
verified

Correct Answer
verified

The United States has never had deflation.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Correct Answer
verified

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

Correct Answer
verified

Velocity is computed as

Correct Answer
verified

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Correct Answer
verified

Exam 17: Money Growth and Inflation

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Correct AnswerverifiedShow Answer

If P = 4 and Y = 450, then which of the following pairs of values are possible?

Correct AnswerverifiedShow Answer

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An excess supply of money is eliminated by a falling price level

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, then 1/P

Correct AnswerverifiedShow Answer

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct AnswerverifiedShow Answer

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow Answer

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Correct AnswerverifiedShow Answer

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the following is 2?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The United States has never had deflation.

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

Correct AnswerverifiedShow Answer

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Velocity is computed as

Correct AnswerverifiedShow Answer

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Correct AnswerverifiedShow Answer

Correct Answer
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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. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
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