Question 1

According to the classical dichotomy, what is NOT influenced by monetary factors?

Accepted Answer

A)  the price level 
B)  real GDP 
C)  nominal interest rates 
D)  nominal GDP 
A)  the price level 
B)  real GDP 
C)  nominal interest rates 
D)  nominal GDP

Question 2

In order to maintain stable prices, what must the central bank do?

Accepted Answer

A)  maintain low interest rates 
B)  keep unemployment low 
C)  tightly control the money supply 
D)  sell indexed bonds 
A)  maintain low interest rates 
B)  keep unemployment low 
C)  tightly control the money supply 
D)  sell indexed bonds

Question 3

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
shoe leather costs: T

Question 4

Define each of the symbols and explain the meaning of M × V = P × Y.

Accepted Answer

M is the quantity of money, V is the vel

Question 5

What is inflation positively correlated with?

Accepted Answer

A)  nominal wage growth 
B)  real interest rate 
C)  productivity growth rate 
D)  the price level 
A)  nominal wage growth 
B)  real interest rate 
C)  productivity growth rate 
D)  the price level

Question 6

Inflation distorts relative prices. What does this mean, and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo

Question 7

According to the classical dichotomy, what is NOT influenced by monetary factors?

Accepted Answer

A)  the nominal GDP 
B)  the real wage rate 
C)  the price level 
D)  the nominal interest rate 
A)  the nominal GDP 
B)  the real wage rate 
C)  the price level 
D)  the nominal interest rate

Question 8

According to the classical dichotomy, when the money supply doubles, what also doubles?

Accepted Answer

A)  the real prices 
B)  the nominal interest rate 
C)  the real GDP 
D)  the nominal GDP 
A)  the real prices 
B)  the nominal interest rate 
C)  the real GDP 
D)  the nominal GDP

Question 9

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?

Accepted Answer

A)  The money supply growth rate is 2 percent. 
B)  The real interest rate is 6 percent. 
C)  The real interest rate is 4 percent. 
D)  The money supply growth rate is 6 percent. 
A)  The money supply growth rate is 2 percent. 
B)  The real interest rate is 6 percent. 
C)  The real interest rate is 4 percent. 
D)  The money supply growth rate is 6 percent.

Question 10

The money supply in Goldova is $50 billion. Nominal GDP is $400 billion and real GDP is $200 billion. The central bank of Goldova has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 10 percent this year, how will the central bank of Goldova change the money supply this year?

Accepted Answer

A)  It will not change the money supply at all. 
B)  It will reduce the money supply by 10 percent. 
C)  It will increase the money supply by 10 percent. 
D)  It will increase the money supply by 1.0 percent. 
A)  It will not change the money supply at all. 
B)  It will reduce the money supply by 10 percent. 
C)  It will increase the money supply by 10 percent. 
D)  It will increase the money supply by 1.0 percent.

Question 11

You put money in an account that earns 9 percent. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  3.0 percent 
B)  3.1 percent 
C)  4.1 percent 
D)  5.5 percent 
A)  3.0 percent 
B)  3.1 percent 
C)  4.1 percent 
D)  5.5 percent

Question 12

If the Bank of Canada were to unexpectedly decrease the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 13

If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?

Accepted Answer

A)  real output 
B)  both real and nominal interest rate 
C)  inflation rate 
D)  the price level 
A)  real output 
B)  both real and nominal interest rate 
C)  inflation rate 
D)  the price level

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

What is an effect of expected inflation?

Accepted Answer

A)  It increases wages. 
B)  It increases the incentive to save. 
C)  It benefits lenders and borrowers. 
D)  It changes real interest rates. 
A)  It increases wages. 
B)  It increases the incentive to save. 
C)  It benefits lenders and borrowers. 
D)  It changes real interest rates.

Question 16

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta

Question 17

Which term refers to economic variables whose values are measured in monetary units?

Accepted Answer

A)  dichotomous variables 
B)  nominal variables 
C)  classical variables 
D)  real variables 
A)  dichotomous variables 
B)  nominal variables 
C)  classical variables 
D)  real variables

Question 18

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?

Accepted Answer

A)  It slopes upward because at higher prices people want to hold more money. 
B)  It slopes downward because at higher prices people want to hold more money. 
C)  It slopes downward because at higher price people want to hold less money. 
D)  It slopes upward because at higher prices people want to hold less money. 
A)  It slopes upward because at higher prices people want to hold more money. 
B)  It slopes downward because at higher prices people want to hold more money. 
C)  It slopes downward because at higher price people want to hold less money. 
D)  It slopes upward because at higher prices people want to hold less money.

Question 19

According to the principle of monetary neutrality, what will an increase in the quantity of money also increase?

Accepted Answer

A)  employment 
B)  nominal GDP 
C)  the incentive to save 
D)  labour productivity 
A)  employment 
B)  nominal GDP 
C)  the incentive to save 
D)  labour productivity

Question 20

Over the past 70 years, what was the approximate average annual inflation rate?

Accepted Answer

A)  1 percent 
B)  4 percent 
C)  8 percent 
D)  10 percent 
A)  1 percent 
B)  4 percent 
C)  8 percent 
D)  10 percent

According to the classical dichotomy, what is NOT influenced by monetary factors?

In order to maintain stable prices, what must the central bank do?

List and define any two of the costs of high inflation.

Define each of the symbols and explain the meaning of M × V = P × Y.

What is inflation positively correlated with?

Inflation distorts relative prices. What does this mean, and why does it impose a cost on society?

According to the classical dichotomy, what is NOT influenced by monetary factors?

According to the classical dichotomy, when the money supply doubles, what also doubles?

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?

You put money in an account that earns 9 percent. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

If the Bank of Canada were to unexpectedly decrease the money supply, creditors would gain at the expense of debtors.

If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?

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

What is an effect of expected inflation?

Explain how inflation affects savings.

Which term refers to economic variables whose values are measured in monetary units?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?

According to the principle of monetary neutrality, what will an increase in the quantity of money also increase?

Over the past 70 years, what was the approximate average annual inflation rate?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 11: Money Growth and Inflation

According to the classical dichotomy, what is NOT influenced by monetary factors?

In order to maintain stable prices, what must the central bank do?

List and define any two of the costs of high inflation.

Define each of the symbols and explain the meaning of M × V = P × Y.

What is inflation positively correlated with?

Inflation distorts relative prices. What does this mean, and why does it impose a cost on society?

According to the classical dichotomy, what is NOT influenced by monetary factors?

According to the classical dichotomy, when the money supply doubles, what also doubles?

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?

You put money in an account that earns 9 percent. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

If the Bank of Canada were to unexpectedly decrease the money supply, creditors would gain at the expense of debtors.

If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?

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

What is an effect of expected inflation?

Explain how inflation affects savings.

Which term refers to economic variables whose values are measured in monetary units?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?

According to the principle of monetary neutrality, what will an increase in the quantity of money also increase?

Over the past 70 years, what was the approximate average annual inflation rate?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters