Question 1

Inflation can be measured by the

Accepted Answer

A)   change in the consumer price index.
B)   percentage change in the consumer price index.
C)   percentage change in the price of a specific commodity.
D)   change in the price of a specific commodity.E) All of the above
F) C) and D)

Question 2

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent.What is the real interest rate?

Accepted Answer

A)   7 percent
B)   5.5 percent
C)   1.75 percent
D)   1.5 percentE) None of the above
F) B) and D)

Question 3

Which of the following is an example of menu costs?

Accepted Answer

A)   deciding on new prices
B)   printing new price lists
C)   advertising new prices
D)   All of the above are examples of menu costs.E) A) and C)
F) B) and D)

Question 4

Which of the following are U.S.taxpayers allowed to adjust for inflation for the purpose of income taxes?

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 B)
F) None of the above D

Question 5

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 6

Figure 22-2.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 22-2.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) None of the above
F) All of the above

Question 7

Menu costs refers to

Accepted Answer

A)   resources used by people to maintain lower money holdings when inflation is high.
B)   resources used to price shop during times of high inflation.
C)   the distortion in incentives created by inflation when taxes do not adjust for inflation.
D)   the cost of more frequent price changes induced by higher inflation.E) B) and C)
F) None of the above

Question 8

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

Question 9

The value of money falls as the price level

Accepted Answer

A)   rises,because the number of dollars needed to buy a representative basket of goods rises.
B)   rises,because the number of dollars needed to buy a representative basket of goods falls.
C)   falls,because the number of dollars needed to buy a representative basket of goods rises.
D)   falls,because the number of dollars needed to buy a representative basket of goods falls.E) None of the above
F) A) and D)

Question 10

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.E) A) and D)
F) C) and D) C

Question 11

Relative-price variability is "automatic" when

Accepted Answer

A)   firms change prices only once in a while.
B)   firms change prices often.
C)   people increase the frequency of their trips to the bank.
D)   people decrease the frequency of their trips to the bank.E) A) and B)
F) A) and C)

Question 12

Velocity is computed as

Accepted Answer

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

Question 13

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) B) and C)
F) A) and D)

Question 14

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically,the government in countries th...

Question 15

If there is inflation,then a firm that has kept its price fixed for some time will have a

Accepted Answer

A)   high relative price.Relative-price variability rises as the inflation rate rises.
B)   high relative price.Relative-price variability falls as the inflation rate rises.
C)   low relative price.Relative-price variability rises as the inflation rate rises.
D)   low relative price.Relative-price variability falls as the inflation rate rises.E) A) and D)
F) A) and C)

Question 16

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) C) and D)
F) B) and D)

Question 17

Most economists believe that monetary neutrality provides

Accepted Answer

A)   a good description of both the long run and the short run.
B)   a good description of neither the long run nor the short run.
C)   a good description of the short run,but not the long run.
D)   a good description of the long run,but not the short run.E) None of the above
F) C) and D)

Question 18

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

Accepted Answer

A)   your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage also increased.
B)   your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage decreased.
C)   your real wage increase.If your real wage rose by a greater percentage than the price level,then your nominal wage also increased.
D)   your real wage decrease.If your real wage rose by a greater percentage than the price level,then your nominal wage decreased.E) B) and C)
F) A) and D)

Question 19

Harvey,a U.S.taxpayer,purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share.Over the year,the price level increased from 140.0 to 147.0.What is Harvey's before-tax real capital gain?

Accepted Answer

A)   $1,300 - $1,000(1.05) and this is the gain he is to report on his income tax
B)   $1,300 - $1,000(1.05) but he is to report a $300 gain on his income tax
C)   $1,300 - $1,000(1.07) and this is the gain he is to report on his income tax
D)   $1,300 - $1,000(1.07) but he is to report a $300 gain on his income taxE) All of the above
F) None of the above

Question 20

The nominal interest rate is 4.5 percent and the inflation rate is 0.9 percent.What is the real interest rate?

Accepted Answer

A)   5.4 percent
B)   5 percent
C)   4.1 percent
D)   3.6 percentE) A) and B)
F) A) and C) D

Exam 22: Money Growth and Inflation

Inflation can be measured by the

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The nominal interest rate is 3.5 percent and the inflation rate is 2 percent.What is the real interest rate?

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Which of the following is an example of menu costs?

Correct AnswerverifiedShow Answer

Which of the following are U.S.taxpayers allowed to adjust for inflation for the purpose of income taxes?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-2.If the relevant money-demand curve is the one labeled MD1,then

Correct AnswerverifiedShow Answer

Menu costs refers to

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

The value of money falls as the price level

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct AnswerverifiedC

Relative-price variability is "automatic" when

Correct AnswerverifiedShow Answer

Velocity is computed as

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically,the government in countries th...View AnswerShow Answer

If there is inflation,then a firm that has kept its price fixed for some time will have a

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

Most economists believe that monetary neutrality provides

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

Correct AnswerverifiedShow Answer

Harvey,a U.S.taxpayer,purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share.Over the year,the price level increased from 140.0 to 147.0.What is Harvey's before-tax real capital gain?

Correct AnswerverifiedShow Answer

The nominal interest rate is 4.5 percent and the inflation rate is 0.9 percent.What is the real interest rate?

Correct AnswerverifiedD

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D

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Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-2.If the relevant money-demand curve is the one labeled MD₁,then

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C

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Typically,the government in countries th...
View Answer

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D