Question 1

In the U.S., taxes on capital gains are computed using

Accepted Answer

A)   nominal gains. This is one way by which higher inflation discourages saving.
B)   nominal gains. This is one way by which higher inflation encourages saving.
C)   real gains. This is one way by which higher inflation discourages saving.
D)   real gains. This is one way by which higher inflation encourages saving.E) C) and D)
F) A) and C)

Question 2

When deflation exists,

Accepted Answer

A)   the real interest rate is less than the nominal interest rate.
B)   the real interest rate is greater than the nominal interest rate.
C)   the real interest rate and inflation are less than the nominal interest rate.
D)   prices rise.E) None of the above
F) B) and C)

Question 3

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

Question 4

According to the principle of monetary neutrality, a decrease in the money supply will not change

Accepted Answer

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

Question 5

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Accepted Answer

The answer of In the U.S., taxes are paid on...

Question 6

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 7

The supply of money increases when

Accepted Answer

A)   the price level falls.
B)   the interest rate increases.
C)   the Fed makes open-market purchases.
D)   money demand increases.E) None of the above
F) A) and B)

Question 8

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A)   upward sloping because people supply a larger quantity of money when the value of money increases.
B)   downward sloping because people supply a larger quantity of money when the value of money decreases.
C)   horizontal because we assume the central bank controls the money supply
D)   vertical because we assume the central bank controls the money supply.E) B) and D)
F) A) and B)

Question 9

If the price level this year was 140 and was 135 last year, what was the inflation rate to the nearest decimal?

Accepted Answer

The answer of If the price level this year was...

Question 10

Market economies rely on which of the following to allocate scarce resources?

Accepted Answer

A)   government
B)   consumers
C)   relative prices
D)   real interest ratesE) B) and C)
F) B) and D)

Question 11

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 12

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Accepted Answer

A)   spend more so the value of a dollar rises.
B)   spend more so the value of a dollar falls.
C)   spend less so the value of a dollar rises.
D)   spend less so the value of a dollar falls.E) B) and C)
F) All of the above

Question 13

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

Question 14

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)   1/P represents the value of money measured in terms of goods and services.
B)   P can be regarded as the "overall price level."
C)   an increase in the value of money is associated with a decrease in P.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 15

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 16

Open-market purchases by the Fed

Accepted Answer

A)   make the price level and value of money fall.
B)   make the price level rise, and make the value of money fall.
C)   make the price level and make the value of money rise.
D)   make the price level fall, and make the value of money rise.E) A) and D)
F) A) and C)

Question 17

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A)   is irrelevant for understanding the determinants of nominal and real variables.
B)   determines nominal variables, but not real variables.
C)   determines real variables, but not nominal variables.
D)   is a determinant of both real and nominal variables.E) A) and D)
F) C) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Accepted Answer

Inflation has raised the general price l...

Question 20

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A)   shift to the right of the money demand curve.
B)   shift to the left of the money demand curve.
C)   movement to the left along the money demand curve.
D)   movement to the right along the money demand curve.E) A) and D)
F) A) and C)

Exam 12: Money Growth and Inflation

The value of money falls as the price level

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With the value of money on the vertical axis, the money supply curve is

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When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

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In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Correct AnswerverifiedShow Answer

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

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When deflation exists,

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When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

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Open-market purchases by the Fed

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A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

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If the price level this year was 140 and was 135 last year, what was the inflation rate to the nearest decimal?

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts. ...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

The classical dichotomy refers to the idea that the supply of money

Correct AnswerverifiedShow Answer

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Correct AnswerverifiedInflation has raised the general price l...View AnswerShow Answer

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

Market economies rely on which of the following to allocate scarce resources?

Correct AnswerverifiedShow Answer

The supply of money increases when

Correct AnswerverifiedShow Answer

According to the principle of monetary neutrality, a decrease in the money supply will not change

Correct AnswerverifiedShow Answer

In the U.S., taxes on capital gains are computed using

Correct AnswerverifiedShow Answer

If P denotes the price of goods and services measured in terms of money, then

Correct AnswerverifiedShow Answer

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In the U.S., taxes are paid on one's _ gains/returns. Therefore, a _ inflation rate encourages more saving.

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Most had large nominal debts. ...
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Inflation has raised the general price l...
View Answer

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