Question 1

Money demand depends on

Accepted Answer

A)   the price level and the interest rate.
B)   the price level but not the interest rate.
C)   the interest rate but not the price level.
D)   neither the price level nor the interest rate.E) C) and D)
F) B) and D)

Question 2

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 3

Higher inflation makes relative prices

Accepted Answer

A)   more variable,making it more likely that resources will be allocated to their best use.
B)   more variable,making it less likely that resources will be allocated to their best use.
C)   less variable,making it more likely that resources will be allocated to their best use.
D)   less variable,making it less likely that resources will be allocated to their best use.E) All of the above
F) A) and B)

Question 4

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 5

Deflation

Accepted Answer

A)   increases incomes and enhances the ability of debtors to pay off their debts.
B)   increases incomes and reduces the ability of debtors to pay off their debts.
C)   decreases incomes and enhances the ability of debtors to pay off their debts.
D)   decreases incomes and reduces the ability of debtors to pay off their debts.E) A) and D)
F) B) and C)

Question 6

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False  True

Question 7

In the 1970s,the U.S.inflation rate reached about

Accepted Answer

A)   7 percent per year.
B)   10 percent per year.
C)   14 percent per year.
D)   20 percent per year.E) B) and C)
F) All of the above

Question 8

The country of Veridian has a tax system identical to that of the United States.Suppose someone in Veridian bought a parcel of land for 10,000 deera (the local currency) in 1964 when the price index equaled 100.In 2005,the person sold the land for 100,000 deera,and the price index equaled 500.The tax rate on nominal capital gains was 20 percent.Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2005 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)   -20 percent
B)   20 percent
C)   42 percent
D)   64 percentE) C) and D)
F) A) and D) D

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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) None of the above

Question 11

If Y and M are constant,and V doubles,the quantity equation implies that the price level

Accepted Answer

A)   falls to half it's original level.
B)   doubles.
C)   more than doubles.
D)   does not change.E) A) and B)
F) A) and C)

Question 12

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who save than for those who borrow.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those whose wages increase by as much as inflation,than those who are paid a fixed nominal wage.
D)   for savers in low income tax brackets than for savers in high income tax brackets.E) None of the above
F) A) and B)

Question 13

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

Accepted Answer

A)   money demand slopes upward and money supply is horizontal.
B)   money demand slopes downward and money supply is horizontal.
C)   money demand slopes upward and money supply is vertical.
D)   money demand slope downward and money supply is vertical.E) B) and C)
F) A) and D)

Question 14

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 C)
F) A) and B)

Question 15

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Accepted Answer

A)   $40.If the price of goods rises,to maintain the real value of her money holdings she need to hold more dollars.
B)   8 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold more dollars.
C)   $40.If the price of goods rises,to maintain the real value of her money holdings she need to hold fewer dollars.
D)   8 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold fewer dollars.E) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

A)   the price level and nominal GDP
B)   the price level and real GDP
C)   only real GDP
D)   only the price levelE) A) and B)
F) A) and C)

Question 17

Shoeleather cost refers to

Accepted Answer

A)   the cost of more frequent price changes induced by higher inflation.
B)   the distortion in resource allocation created by distortions in relative prices due to inflation.
C)   resources used to maintain lower money holdings when inflation is high.
D)   the tendency to expend more effort searching for the lowest price when inflation is high.E) A) and B)
F) A) and C)

Question 18

The United States has never had deflation.

Accepted Answer

A) True 
 B)False  False

Question 19

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

Question 20

For a given real interest rate,a decrease in the inflation rate would

Accepted Answer

A)   decrease the after-tax real interest rate and so decrease saving.
B)   decrease the after-tax real interest rate and so increase saving.
C)   increase the after-tax real interest rate and so decrease saving.
D)   increase the after-tax real interest rate and so increase saving.E) B) and C)
F) All of the above

Exam 30: Money Growth and Inflation

Money demand depends on

Correct Answer
verified

Nominal GDP measures output of final goods and services in physical terms.

Correct Answer
verified

Higher inflation makes relative prices

Correct Answer
verified

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Correct Answer
verified

Deflation

Correct Answer
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The quantity equation is M x V = P x Y.

Correct Answer
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True

In the 1970s,the U.S.inflation rate reached about

Correct Answer
verified

Correct Answer
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D

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

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

If Y and M are constant,and V doubles,the quantity equation implies that the price level

Correct Answer
verified

High and unexpected inflation has a greater cost

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Correct Answer
verified

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

Correct Answer
verified

Shoeleather cost refers to

Correct Answer
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The United States has never had deflation.

Correct Answer
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False

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 Answer
verified

For a given real interest rate,a decrease in the inflation rate would

Correct Answer
verified

Exam 30: Money Growth and Inflation

Money demand depends on

Correct AnswerverifiedShow Answer

Nominal GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Correct AnswerverifiedShow Answer

Deflation

Correct AnswerverifiedShow Answer

The quantity equation is M x V = P x Y.

Correct AnswerverifiedTrue

In the 1970s,the U.S.inflation rate reached about

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

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

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

If Y and M are constant,and V doubles,the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Shoeleather cost refers to

Correct AnswerverifiedShow Answer

The United States has never had deflation.

Correct AnswerverifiedFalse

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

For a given real interest rate,a decrease in the inflation rate would

Correct AnswerverifiedShow Answer

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True

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D

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False

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