Question 1

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A) the inflation rate and growth of real GDP. 
B) the inflation rate but not the growth rate of real GDP. 
C) the growth rate of real GDP, but not the inflation rate. 
D) neither the inflation rate nor the growth rate of real GDP. 
A) the inflation rate and growth of real GDP. 
B) the inflation rate but not the growth rate of real GDP. 
C) the growth rate of real GDP, but not the inflation rate. 
D) neither the inflation rate nor the growth rate of real GDP.

Question 2

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A) nominal and real GDP would rise by 5 percent. 
B) nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C) nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D) neither nominal GDP nor real GDP would change. 
A) nominal and real GDP would rise by 5 percent. 
B) nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C) nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D) neither nominal GDP nor real GDP would change.

Question 3

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Accepted Answer

A) 10.5 percent 
B) 20 percent 
C) 5.5 percent 
D) 3.2 percent 
A) 10.5 percent 
B) 20 percent 
C) 5.5 percent 
D) 3.2 percent

Question 4

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to

Accepted Answer

A) 2,500. 
B) 7,500. 
C) 10,000. 
D) 40,000. 
A) 2,500. 
B) 7,500. 
C) 10,000. 
D) 40,000.

Question 5

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

Accepted Answer

A) 9 percent 
B) 2 percent 
C) 18 percent 
D) 3 percent 
A) 9 percent 
B) 2 percent 
C) 18 percent 
D) 3 percent

Question 6

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

Question 7

The idea of menu costs suggests that

Accepted Answer

A) firms alter prices less frequently as inflation increases. 
B) firms alter prices more frequently as inflation increases. 
C) firms always alter prices when costs increase. 
D) firms alter prices as interest rates rise. 
A) firms alter prices less frequently as inflation increases. 
B) firms alter prices more frequently as inflation increases. 
C) firms always alter prices when costs increase. 
D) firms alter prices as interest rates rise.

Question 8

If the value of a dollar falls, then the quantity of money demanded

Accepted Answer

A) rises, meaning people want to hold more of their wealth in a liquid form. 
B) rises, meaning people desire to work more so their income rises. 
C) falls, meaning people want to hold less of their wealth in a liquid form. 
D) falls, meaning people want to work less so their income falls. 
A) rises, meaning people want to hold more of their wealth in a liquid form. 
B) rises, meaning people desire to work more so their income rises. 
C) falls, meaning people want to hold less of their wealth in a liquid form. 
D) falls, meaning people want to work less so their income falls.

Question 9

When there is inflation, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A) increases, and so the value of money rises. 
B) increases, and so the value of money falls. 
C) decreases, and so the value of money rises. 
D) decreases, and so the value of money falls 
A) increases, and so the value of money rises. 
B) increases, and so the value of money falls. 
C) decreases, and so the value of money rises. 
D) decreases, and so the value of money falls

Question 10

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A) the quantity of money demanded is greater than the quantity supplied; the price level will rise. 
B) the quantity of money demanded is greater than the quantity supplied; the price level will fall. 
C) the quantity of money supplied is greater than the quantity demanded; the price level will rise. 
D) the quantity of money supplied is greater than the quantity demanded; the price level will fall. 
A) the quantity of money demanded is greater than the quantity supplied; the price level will rise. 
B) the quantity of money demanded is greater than the quantity supplied; the price level will fall. 
C) the quantity of money supplied is greater than the quantity demanded; the price level will rise. 
D) the quantity of money supplied is greater than the quantity demanded; the price level will fall.

Question 11

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Accepted Answer

A) will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B) will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C) will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D) will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
A) will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B) will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C) will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D) will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.

Question 12

Between 1880 and 1886, prices that were

Accepted Answer

A) lower than expected transferred wealth from creditors to debtors. 
B) lower than expected transferred wealth from debtors to creditors. 
C) higher than expected transferred wealth from creditors to debtors. 
D) higher than expected transferred wealth from debtors to creditors. 
A) lower than expected transferred wealth from creditors to debtors. 
B) lower than expected transferred wealth from debtors to creditors. 
C) higher than expected transferred wealth from creditors to debtors. 
D) higher than expected transferred wealth from debtors to creditors.

Question 13

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Accepted Answer

A) Jane's nominal income and real income decreased this year. 
B) Jane's nominal income decreased this year, but her real income increased. 
C) Jane's nominal income and real income increased this year. 
D) Jane's nominal income increased this year, but her real income decreased. 
A) Jane's nominal income and real income decreased this year. 
B) Jane's nominal income decreased this year, but her real income increased. 
C) Jane's nominal income and real income increased this year. 
D) Jane's nominal income increased this year, but her real income decreased.

Question 14

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A) 4.8 percent 
B) 5.4 percent 
C) 7.2 percent 
D) 4.2 percent. 
A) 4.8 percent 
B) 5.4 percent 
C) 7.2 percent 
D) 4.2 percent.

Question 15

Economic variables whose values are measured in monetary units are called

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 16

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Accepted Answer

A) $50 
B) $75 
C) $100 
D) $200 
A) $50 
B) $75 
C) $100 
D) $200

Question 17

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A) rises, because one unit of currency buys more ice cream cones. 
B) rises, because one unit of currency buys fewer ice cream cones. 
C) falls, because one unit of currency buys more ice cream cones. 
D) falls, because one unit of currency buys fewer ice cream cones. 
A) rises, because one unit of currency buys more ice cream cones. 
B) rises, because one unit of currency buys fewer ice cream cones. 
C) falls, because one unit of currency buys more ice cream cones. 
D) falls, because one unit of currency buys fewer ice cream cones.

Question 18

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A) 0.5 and the equilibrium price level is 2. 
B) 2 and the equilibrium price level is 0.5. 
C) 0.5 and the equilibrium price level cannot be determined from the graph. 
D) 2 and the equilibrium price level cannot be determined from the graph. 
A) 0.5 and the equilibrium price level is 2. 
B) 2 and the equilibrium price level is 0.5. 
C) 0.5 and the equilibrium price level cannot be determined from the graph. 
D) 2 and the equilibrium price level cannot be determined from the graph.

Question 19

When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level,

Accepted Answer

A) the price level will rise. 
B) the value of money will rise. 
C) money demand will shift leftward. 
D) money demand will shift rightward. 
A) the price level will rise. 
B) the value of money will rise. 
C) money demand will shift leftward. 
D) money demand will shift rightward.

Question 20

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

Accepted Answer

The after tax nominal interest

Exam 30: Money Growth and Inflation

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

An increase in money demand would create a surplus of money at the original value of money.

The idea of menu costs suggests that

If the value of a dollar falls, then the quantity of money demanded

When there is inflation, the number of dollars needed to buy a representative basket of goods

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Between 1880 and 1886, prices that were

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Economic variables whose values are measured in monetary units are called

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level,

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

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. If the money supply is MS₂ and the value of money is 2, then

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD₁, then the equilibrium value of money is