Question 1

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. 
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.

Question 2

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. 
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.

Question 3

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 4

Confusion and inconvenience costs arise when inflation

Accepted Answer

A) ​improves the store of value function of money. 
B) ​reduces the real value of the unit of account. 
C) introduces tax distortions on capital gains. 
D) ​reduces the real debt burden owed by borrowers. 
A) ​improves the store of value function of money. 
B) ​reduces the real value of the unit of account. 
C) introduces tax distortions on capital gains. 
D) ​reduces the real debt burden owed by borrowers.

Question 5

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Accepted Answer

A) quantity theory of money. 
B) price-index theory of money. 
C) theory of hyperinflation. 
D) disequilibrium theory of money and inflation. 
A) quantity theory of money. 
B) price-index theory of money. 
C) theory of hyperinflation. 
D) disequilibrium theory of money and inflation.

Question 6

Relative-price variability is "automatic" when

Accepted Answer

A) firms change prices only once in a while. 
B) firms change prices often. 
C) people increase the frequency of their trips to the bank. 
D) people decrease the frequency of their trips to the bank. 
A) firms change prices only once in a while. 
B) firms change prices often. 
C) people increase the frequency of their trips to the bank. 
D) people decrease the frequency of their trips to the bank.

Question 7

The inflation tax

Accepted Answer

A) is an alternative to income taxes and government borrowing. 
B) taxes most those who hold the most money. 
C) is the revenue created when the government prints money. 
D) All of the above are correct. 
A) is an alternative to income taxes and government borrowing. 
B) taxes most those who hold the most money. 
C) is the revenue created when the government prints money. 
D) All of the above are correct.

Question 8

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

The answer of One year ago Sam purchased bonds for...

Question 9

Which of the following statements about inflation is correct?

Accepted Answer

A) Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity. 
B) People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality. 
C) Nominal incomes are determined by nominal factors; they are not affected by real factors. 
D) Inflation does not in itself reduce people's real purchasing power. 
A) Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity. 
B) People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality. 
C) Nominal incomes are determined by nominal factors; they are not affected by real factors. 
D) Inflation does not in itself reduce people's real purchasing power.

Question 10

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Accepted Answer

A) The price level and velocity are both 8. 
B) The price level is 2 and velocity is 8. 
C) The price level and velocity are both 4. 
D) The price level is 4 and velocity is 8. 
A) The price level and velocity are both 8. 
B) The price level is 2 and velocity is 8. 
C) The price level and velocity are both 4. 
D) The price level is 4 and velocity is 8.

Question 11

Inflation is problematic if

Accepted Answer

A) it is less than the percentage increase in nominal income. 
B) it is less than the nominal return on saving. 
C) it equals the growth rate of real GDP in the long run. 
D) it distorts relative prices, causing a misallocation of resources. 
A) it is less than the percentage increase in nominal income. 
B) it is less than the nominal return on saving. 
C) it equals the growth rate of real GDP in the long run. 
D) it distorts relative prices, causing a misallocation of resources.

Question 12

Money demand refers to

Accepted Answer

A) the total quantity of financial assets that people want to hold. 
B) how much income people want to earn per year. 
C) how much wealth people want to hold in liquid form. 
D) how much currency the Federal Reserve decides to print. 
A) the total quantity of financial assets that people want to hold. 
B) how much income people want to earn per year. 
C) how much wealth people want to hold in liquid form. 
D) how much currency the Federal Reserve decides to print.

Question 13

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Accepted Answer

A) Unemployment 
B) Productivity 
C) Inflation 
D) Monetary policy 
A) Unemployment 
B) Productivity 
C) Inflation 
D) Monetary policy

Question 14

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. 
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.

Question 15

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold if for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after-tax gain? (Hint: What's the real value of the land in current prices?)

Accepted Answer

The answer of Fifteen years ago your parents purchased some...

Question 16

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A) menu costs and shoeleather costs 
B) menu costs but not shoeleather costs 
C) shoeleather costs but not menu costs 
D) Menu costs but not shoeleather costs 
A) menu costs and shoeleather costs 
B) menu costs but not shoeleather costs 
C) shoeleather costs but not menu costs 
D) Menu costs but not shoeleather costs

Question 17

In which case below does a person's purchasing power from saving increase the most?

Accepted Answer

A) the nominal interest rate = 10% and inflation = 8% 
B) the nominal interest rate = 9% and inflation = 6% 
C) the nominal interest rate = 8% and inflation = 4% 
D) the nominal interest rate = 7% and inflation = 2% 
A) the nominal interest rate = 10% and inflation = 8% 
B) the nominal interest rate = 9% and inflation = 6% 
C) the nominal interest rate = 8% and inflation = 4% 
D) the nominal interest rate = 7% and inflation = 2%

Question 18

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A) increases the price level and increases the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and decreases the value of money. 
A) increases the price level and increases the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and decreases the value of money.

Question 19

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. 
A) the price level falls. 
B) the interest rate increases. 
C) the Fed makes open-market purchases. 
D) money demand increases.

Question 20

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Exam 30: Money Growth and Inflation

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

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

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.

Confusion and inconvenience costs arise when inflation

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Relative-price variability is "automatic" when

The inflation tax

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Which of the following statements about inflation is correct?

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Inflation is problematic if

Money demand refers to

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

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

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

In which case below does a person's purchasing power from saving increase the most?

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

The supply of money increases when

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

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

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

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.