Question 1

Higher inflation

Accepted Answer

A) causes firms to change prices less frequently and makes relative prices less variable. 
B) causes firms to change prices less frequently and makes relative prices more variable. 
C) causes firms to change prices more frequently and makes relative prices less variable. 
D) causes firms to change prices more frequently and makes relative prices more variable. 
A) causes firms to change prices less frequently and makes relative prices less variable. 
B) causes firms to change prices less frequently and makes relative prices more variable. 
C) causes firms to change prices more frequently and makes relative prices less variable. 
D) causes firms to change prices more frequently and makes relative prices more variable.

Question 2

The Fisher effect is crucial for understanding changes over time in

Accepted Answer

A) the nominal interest rate. 
B) the real interest rate. 
C) the inflation rate. 
D) the unemployment rate. 
A) the nominal interest rate. 
B) the real interest rate. 
C) the inflation rate. 
D) the unemployment rate.

Question 3

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Accepted Answer

A) True 
 B)False

Question 4

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Accepted Answer

The after- tax nominal interes

Question 5

According to the classical dichotomy, which of the following is affected by monetary factors?

Accepted Answer

A) nominal wages 
B) the price level 
C) nominal GDP 
D) All of the above are correct. 
A) nominal wages 
B) the price level 
C) nominal GDP 
D) All of the above are correct.

Question 6

You put money in the bank. The increase in the dollar value of your savings

Accepted Answer

A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. 
D) is a real variable, but the change in the number of goods you buy with your savings is a nominal variable. 
A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. 
D) is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

Question 7

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

Accepted Answer

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

Question 8

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Accepted Answer

A) True 
 B)False

Question 9

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 10

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

Accepted Answer

A) The real and nominal value of the wages you pay. 
B) The real but not the nominal value of wages you pay. 
C) The nominal but not the real value of the wages you pay. 
D) Neither the real nor the nominal value of the wages you pay. 
A) The real and nominal value of the wages you pay. 
B) The real but not the nominal value of wages you pay. 
C) The nominal but not the real value of the wages you pay. 
D) Neither the real nor the nominal value of the wages you pay.

Question 11

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A) 3.6 percent. 
B) 2.4 percent. 
C) 2.0 percent. 
D) 4.4 percent. 
A) 3.6 percent. 
B) 2.4 percent. 
C) 2.0 percent. 
D) 4.4 percent.

Question 12

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-3. What quantity is measured along the vertical axis?

Accepted Answer

A) the price level 
B) the velocity of money 
C) the value of money 
D) the quantity of money 
A) the price level 
B) the velocity of money 
C) the value of money 
D) the quantity of money

Question 13

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the quantity theory,

Accepted Answer

A) inflation averaged 8% per year and the real interest rate was 9%. 
B) inflation averaged 11% per year and the real interest rate was 17%. 
C) inflation averaged 5% per year and the real interest rate was 4%. 
D) inflation averaged 1% per year and the real interest rate was 6%. 
A) inflation averaged 8% per year and the real interest rate was 9%. 
B) inflation averaged 11% per year and the real interest rate was 17%. 
C) inflation averaged 5% per year and the real interest rate was 4%. 
D) inflation averaged 1% per year and the real interest rate was 6%.

Question 14

The velocity of money is

Accepted Answer

A) the rate at which the Fed puts money into the economy. 
B) the same thing as the long-term growth rate of the money supply. 
C) the money supply divided by nominal GDP. 
D) the average number of times per year a dollar is spent. 
A) the rate at which the Fed puts money into the economy. 
B) the same thing as the long-term growth rate of the money supply. 
C) the money supply divided by nominal GDP. 
D) the average number of times per year a dollar is spent.

Question 15

An excess supply of money is eliminated by a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Question 18

As the price level falls, the value of money falls.

Accepted Answer

A) True 
 B)False

Question 19

Nominal GDP measures

Accepted Answer

A) the total quantity of final goods and services produced. 
B) the dollar value of the economy's output of final goods and services. 
C) the total income received from producing final goods and services measured in constant dollars. 
D) the overall level of prices. 
A) the total quantity of final goods and services produced. 
B) the dollar value of the economy's output of final goods and services. 
C) the total income received from producing final goods and services measured in constant dollars. 
D) the overall level of prices.

Question 20

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

Accepted Answer

A) government 
B) consumers 
C) relative prices 
D) real interest rates 
A) government 
B) consumers 
C) relative prices 
D) real interest rates

Exam 30: Money Growth and Inflation

Higher inflation

The Fisher effect is crucial for understanding changes over time in

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

According to the classical dichotomy, which of the following is affected by monetary factors?

You put money in the bank. The increase in the dollar value of your savings

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. What quantity is measured along the vertical axis?

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the quantity theory,

The velocity of money is

An excess supply of money is eliminated by a decrease in the value of money.

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

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

As the price level falls, the value of money falls.

Nominal GDP measures

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

An increase in the price level causes the value of money to _. Therefore, people will want to hold money, because the cost of their purchases has increased.