Question 1

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

Accepted Answer

A) 1. 
B) 1.5. 
C) 2. 
D) 4.5. 
A) 1. 
B) 1.5. 
C) 2. 
D) 4.5.

Question 2

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat

Question 3

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Accepted Answer

A) the real interest rate, which is how fast the dollar value of savings grows. 
B) the real interest rate, which is how fast the purchasing power of savings grows. 
C) the nominal interest rate, which is how fast the dollar value of savings grows. 
D) the nominal interest rate, which is how fast the purchasing power of savings grows. 
A) the real interest rate, which is how fast the dollar value of savings grows. 
B) the real interest rate, which is how fast the purchasing power of savings grows. 
C) the nominal interest rate, which is how fast the dollar value of savings grows. 
D) the nominal interest rate, which is how fast the purchasing power of savings grows.

Question 4

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Accepted Answer

A) selling bonds on the open market, which would have raised the value of money. 
B) purchasing bonds on the open market, which would have raised the value of money. 
C) Selling bonds on the open market, which would have raised the value of money. 
D) purchasing bonds on the open market, which would have lowered the value of money. 
A) selling bonds on the open market, which would have raised the value of money. 
B) purchasing bonds on the open market, which would have raised the value of money. 
C) Selling bonds on the open market, which would have raised the value of money. 
D) purchasing bonds on the open market, which would have lowered the value of money.

Question 5

Over the last 80 years, the average annual U.S. inflation rate was about

Accepted Answer

A) 3.6 percent, implying that prices have increased 16-fold. 
B) 4 percent, implying that prices have increased 17-fold. 
C) 4 percent, implying that prices have increased 16-fold. 
D) 3.6 percent, implying that prices increased about 17-fold. 
A) 3.6 percent, implying that prices have increased 16-fold. 
B) 4 percent, implying that prices have increased 17-fold. 
C) 4 percent, implying that prices have increased 16-fold. 
D) 3.6 percent, implying that prices increased about 17-fold.

Question 6

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts.

Question 7

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Accepted Answer

A) Inflation is 4 percent; the tax rate is 5 percent. 
B) Inflation is 3 percent; the tax rate is 20 percent. 
C) Inflation is 2 percent; the tax rate is 30 percent. 
D) The after-tax real interest rate is the same for all of the above. 
A) Inflation is 4 percent; the tax rate is 5 percent. 
B) Inflation is 3 percent; the tax rate is 20 percent. 
C) Inflation is 2 percent; the tax rate is 30 percent. 
D) The after-tax real interest rate is the same for all of the above.

Question 8

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Accepted Answer

A) excess demand for money which causes the price level to rise. 
B) excess demand for money which causes the price level to fall. 
C) excess supply of money which causes the price level to rise. 
D) excess supply of money which causes the price level to fall. 
A) excess demand for money which causes the price level to rise. 
B) excess demand for money which causes the price level to fall. 
C) excess supply of money which causes the price level to rise. 
D) excess supply of money which causes the price level to fall.

Question 9

In which of the following cases is the after-tax real interest rate highest?

Accepted Answer

A) inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 20%. 
B) inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 25%. 
C) inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 20%. 
D) inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 25%. 
A) inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 20%. 
B) inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 25%. 
C) inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 20%. 
D) inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 25%.

Question 10

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Accepted Answer

A) the value of money rises which will make people desire to hold more money. 
B) the value of money rises which will make people desire to hold less money. 
C) the value of money falls which will make people desire to hold more money. 
D) the value of money falls which will make people desire to hold less money. 
A) the value of money rises which will make people desire to hold more money. 
B) the value of money rises which will make people desire to hold less money. 
C) the value of money falls which will make people desire to hold more money. 
D) the value of money falls which will make people desire to hold less money.

Question 11

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A) 28.00 percent 
B) 36.25 percent 
C) 43.75 percent 
D) 67.50 percent 
A) 28.00 percent 
B) 36.25 percent 
C) 43.75 percent 
D) 67.50 percent

Question 12

​Unexpected and large deflation is desirable, according to the Friedman rule.

Accepted Answer

A) True 
 B)False

Question 13

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 14

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected. 
A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected.

Question 15

The consumer price index increases from 200 to 208. What is the inflation rate?

Accepted Answer

The answer of The consumer price index increases from 200...

Question 16

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after-tax real rate of interest

Accepted Answer

A) will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
B) will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent. 
C) will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
D) will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent. 
A) will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
B) will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent. 
C) will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
D) will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.

Question 17

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Accepted Answer

A) a real interest rate of 3 percent and an inflation rate of 2 percent. 
B) a real interest rate of 7 percent and an inflation rate of 1 percent. 
C) a real interest rate of 5 percent and an inflation rate of 1 percent. 
D) a real interest rate of 6 percent and an inflation rate of 1 percent. 
A) a real interest rate of 3 percent and an inflation rate of 2 percent. 
B) a real interest rate of 7 percent and an inflation rate of 1 percent. 
C) a real interest rate of 5 percent and an inflation rate of 1 percent. 
D) a real interest rate of 6 percent and an inflation rate of 1 percent.

Question 18

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A) increases the real interest rate and the after-tax real rate of interest. 
B) Increases the real interest rate and the after-tax real rate of interest. 
C) does not change the real interest rate but raises the after tax real rate of interest. 
D) does not change the real interest rate but reduces the after-tax real rate of interest. 
A) increases the real interest rate and the after-tax real rate of interest. 
B) Increases the real interest rate and the after-tax real rate of interest. 
C) does not change the real interest rate but raises the after tax real rate of interest. 
D) does not change the real interest rate but reduces the after-tax real rate of interest.

Question 19

Jimmy Carter, Ronald Reagan, and Gerald Ford are all U.S. presidents whose political careers were helped by inflation.

Accepted Answer

A) True 
 B)False

Question 20

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. 
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.

Exam 30: Money Growth and Inflation

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Banks advertise

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Over the last 80 years, the average annual U.S. inflation rate was about

Why did farmers in the late 1800s dislike deflation?

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

In which of the following cases is the after-tax real interest rate highest?

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

​Unexpected and large deflation is desirable, according to the Friedman rule.

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

The consumer price index increases from 200 to 208. What is the inflation rate?

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after-tax real rate of interest

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Jimmy Carter, Ronald Reagan, and Gerald Ford are all U.S. presidents whose political careers were helped by inflation.

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

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

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Unexpected and large deflation is desirable, according to the Friedman rule.