Question 1

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

Accepted Answer

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

Question 2

Money neutrality states that a change in the money supply affects _____ variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the _____.

Accepted Answer

The answer of Money neutrality states that a change in...

Question 3

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)   Friedman Effect.
B)   Hume Effect.
C)   Fisher Effect.
D)   the inflation tax.E) B) and D)
F) A) and D)

Question 4

If M = 6,000, P = 3, and Y = 3,000, what is velocity?

Accepted Answer

A)   6
B)   1.5
C)   0.67
D)   0.167E) A) and B)
F) All of the above

Question 5

The inflation tax falls mostly heavily on

Accepted Answer

A)   those who hold a lot of currency and accounts for a large share of U.S. government revenue.
B)   those who hold a lot of currency but accounts for a small share of U.S. government revenue.
C)   those who hold little currency and accounts for a large share of U.S. government revenue.
D)   those who hold little currency but accounts for a small share of U.S. government revenue.E) C) and D)
F) A) and C)

Question 6

Figure 30-1 
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A)   the quantity of money demanded is greater than the quantity supplied; the price level will rise.
B)   the quantity of money demanded is greater than the quantity supplied; the price level will fall.
C)   the quantity of money supplied is greater than the quantity demanded; the price level will rise.
D)   the quantity of money supplied is greater than the quantity demanded; the price level will fall.E) None of the above
F) B) and D)

Question 7

Figure 30-1 
-Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the demand for goods and services decreases.
B)   the economy's ability to produce goods and services increases.
C)   the equilibrium price level decreases.
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 8

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Accepted Answer

A)   increases the price level by more than 4 percent.
B)   increases the price level by 4 percent.
C)   increases the price level by less than 4 percent.
D)   increases real GDP by 4 percent.E) C) and D)
F) All of the above

Question 9

In which of the following cases was the inflation rate 12 percent over the last year?

Accepted Answer

A)   One year ago the price index had a value of 110 and now it has a value of 120.
B)   One year ago the price index had a value of 120 and now it has a value of 132.
C)   One year ago the price index had a value of 134 and now it has a value of 150.
D)   One year ago the price index had a value of 145 and now it has a value of 163.E) C) and D)
F) A) and B)

Question 10

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Accepted Answer

A)   The dollar price of jeans and the relative price of jeans are both nominal variables.
B)   The dollar price of jeans and the relative price of jeans are both real variables.
C)   The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable.
D)   The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable.E) B) and C)
F) A) and B)

Question 11

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)   both the classical dichotomy and the quantity theory of money.
B)   the classical dichotomy, but not the quantity theory of money.
C)   the quantity theory of money, but not the classical dichotomy.
D)   neither the classical dichotomy nor the quantity theory of money.E) None of the above
F) B) and C)

Question 12

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Accepted Answer

A)   real output only.
B)   nominal output only.
C)   the price level only.
D)   both the price level and nominal output.E) A) and D)
F) A) and C)

Question 13

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A)   menu costs
B)   inflation tax
C)   shoeleather costs
D)   All of the above are correct.E) A) and D)
F) A) and B)

Question 14

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

Question 15

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

Accepted Answer

A)   decrease, which encourages savings.
B)   decrease, which discourages savings.
C)   increase, which encourages savings.
D)   increase, which discourages savings.E) B) and D)
F) A) and C)

Question 16

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

Accepted Answer

A)   3.33.
B)   0.83.
C)   1.20.
D)   13.33.E) A) and B)
F) B) and C)

Question 17

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)   is easier to impose.
B)   reduces inflation.
C)   falls mainly on high-income individuals.
D)   reduces the real cost of government expenditure.E) All of the above
F) C) and D)

Question 18

People can reduce the inflation tax by

Accepted Answer

A)   reducing savings.
B)   increasing deductions on their income tax.
C)   reducing cash holdings.
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 19

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Accepted Answer

A)   she really is worse off.
B)   her real income increased eight percent.
C)   menu costs have reduced her purchasing power.
D)   she is committing the inflation fallacy.E) All of the above
F) B) and C)

Question 20

Inflation can be measured by the

Accepted Answer

A)   change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years.
B)   change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.
C)   percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years.
D)   percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.E) C) and D)
F) B) and C)

Exam 22: Money Growth and Inflation

The inflation tax falls mostly heavily on

Correct AnswerverifiedShow Answer

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Correct AnswerverifiedShow Answer

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Correct AnswerverifiedShow Answer

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Money neutrality states that a change in the money supply affects _____ variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the _____.

Correct AnswerverifiedShow Answer

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Correct AnswerverifiedShow Answer

Governments may prefer an inflation tax to some other type of tax because the inflation tax

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If M = 6,000, P = 3, and Y = 3,000, what is velocity?

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People can reduce the inflation tax by

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

Correct AnswerverifiedShow Answer

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Correct AnswerverifiedShow Answer

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Correct AnswerverifiedShow Answer

In which of the following cases was the inflation rate 12 percent over the last year?

Correct AnswerverifiedShow Answer

Inflation can be measured by the

Correct AnswerverifiedShow Answer

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

Correct AnswerverifiedShow Answer

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Money neutrality states that a change in the money supply affects _ variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the _.

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