Question 1

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 2

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) A) and C)

Question 3

If the price level increased from 120 to 130, then what was the inflation rate?

Accepted Answer

A)   1.1 percent.
B)   7.7 percent.
C)   10.0 percent.
D)   8.3 percent.E) C) and D)
F) A) and C)

Question 4

Which of the following is correct?

Accepted Answer

A)   Inflation impedes financial markets in their role of allocating savings to alternative investments.
B)   Inflation encourages savings through the tax treatment on capital gains.
C)   Inflation encourages larger holdings of currency by the public.
D)   Inflation reduces people's real purchasing power.E) A) and B)
F) C) and D)

Question 5

In the U.S., from the early 1980s through the early 1990s,

Accepted Answer

A)   both inflation and nominal interest rates rose.
B)   both inflation and nominal interest rates fell.
C)   the inflation rate fell and the nominal interest rate rose.
D)   the inflation rate rose and the nominal interest rate fell.E) All of the above
F) A) and C)

Question 6

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

Accepted Answer

A)   0.167.
B)   1.
C)   4.
D)   36.E) C) and D)
F) All of the above

Question 7

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A)   decreases the price level by 2 percent.
B)   decreases the price level by less than 2 percent.
C)   increases the price level by less than 2 percent.
D)   increases the price level by 2 percent.E) A) and D)
F) A) and C)

Question 8

Real GDP measures output of final goods and services in physical units.

Accepted Answer

A) True 
 B)False

Question 9

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Accepted Answer

The answer of An increase in the price level means...

Question 10

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. 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) A) and B)
F) B) and C)

Question 11

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) None of the above
F) All of the above

Question 12

The Fisher effect

Accepted Answer

A)   says the government can generate revenue by printing money.
B)   says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)   explains how higher money supply growth leads to higher inflation.
D)   explains how prices adjust to obtain equilibrium in the money market.E) B) and D)
F) A) and C)

Question 13

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

Accepted Answer

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

Question 14

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old valueE) A) and B)
F) None of the above

Question 15

Which of the following is correct? Inflation

Accepted Answer

A)   impedes financial markets in their role of allocating resources.
B)   reduces the purchasing power of the average consumer.
C)   generally increases after-tax real interest rates.
D)   is most costly when anticipated.E) B) and D)
F) C) and D)

Question 16

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Accepted Answer

A)   40 percent.
B)   33.3 percent.
C)   25 percent.
D)   50 percent.E) All of the above
F) C) and D)

Question 17

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 18

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)   Inflation is 5 percent; the tax rate is 40 percent.
B)   Inflation is 4 percent; the tax rate is 30 percent.
C)   Inflation is 3 percent; the tax rate is 45 percent.
D)   Inflation is 2 percent; the tax rate is 50 percent.E) A) and D)
F) All of the above

Question 19

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) All of the above
F) None of the above

Question 20

You observe people going to the bank more frequently. Other things the same this could result from

Accepted Answer

A)   an increase in inflation which increases money demand.
B)   an increase in inflation which reduces money demand.
C)   a decrease in inflation which increases money demand.
D)   a decrease in inflation which reduces money demand.E) A) and B)
F) C) and D)

Exam 17: Money Growth and Inflation

The Fisher effect

Correct Answer
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Real GDP measures output of final goods and services in physical units.

Correct Answer
verified

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then

Correct Answer
verified

Which of the following is correct? Inflation

Correct Answer
verified

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

Correct Answer
verified

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Correct Answer
verified

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Correct Answer
verified

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

Correct Answer
verified

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

Correct Answer
verified

Correct Answer
verified

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Correct Answer
verified

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

Correct Answer
verified

If the price level increased from 120 to 130, then what was the inflation rate?

Correct Answer
verified

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Correct Answer
verified

You observe people going to the bank more frequently. Other things the same this could result from

Correct Answer
verified

An increase in the price level means that a dollar buys goods and services so the value of a dollar .

Correct Answer
verified

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Correct Answer
verified

Which of the following is correct?

Correct Answer
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In the U.S., from the early 1980s through the early 1990s,

Correct Answer
verified

When deflation exists,

Correct Answer
verified

Exam 17: Money Growth and Inflation

The Fisher effect

Correct AnswerverifiedShow Answer

Real GDP measures output of final goods and services in physical units.

Correct AnswerverifiedShow Answer

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then

Correct AnswerverifiedShow Answer

Which of the following is correct? Inflation

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Correct AnswerverifiedShow Answer

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

Correct AnswerverifiedShow Answer

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 interest rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the price level increased from 120 to 130, then what was the inflation rate?

Correct AnswerverifiedShow Answer

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Correct AnswerverifiedShow Answer

You observe people going to the bank more frequently. Other things the same this could result from

Correct AnswerverifiedShow Answer

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Correct AnswerverifiedShow Answer

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

In the U.S., from the early 1980s through the early 1990s,

Correct AnswerverifiedShow Answer

When deflation exists,

Correct AnswerverifiedShow Answer

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An increase in the price level means that a dollar buys goods and services so the value of a dollar .

Correct Answer
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