Exam 30: Money Growth and Inflation

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

The hyperinflation in Zimbabwe ended in April 2009 when the central bank purchased government bonds in open-market operations.

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

If P denotes the price of goods and services measured in terms of money, then

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?

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Which of the following is not correct?

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

If the CPI rises, the number of dollars needed to buy a representative basket of goods

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

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

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

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

​The primary cause of inflation is

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced