Question 1

Inflation can be measured by the

Accepted Answer

A) change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years. 
B) change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. 
C) percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years. 
D) percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. 
A) change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years. 
B) change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. 
C) percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years. 
D) percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.

Question 2

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 3

Real GDP measures output of final goods and services in physical units.

Accepted Answer

A) True 
 B)False

Question 4

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch

Question 5

The inflation tax refers to

Accepted Answer

A) the revenue a government creates by printing money. 
B) higher inflation which requires more frequent price changes. 
C) the idea that, other things the same, an increase in the tax rate raises the inflation rate. 
D) taxes being indexed for inflation. 
A) the revenue a government creates by printing money. 
B) higher inflation which requires more frequent price changes. 
C) the idea that, other things the same, an increase in the tax rate raises the inflation rate. 
D) taxes being indexed for inflation.

Question 6

Ashley puts money in a savings account at her bank earning 2 percent interest. One year later she takes her money out and notes that prices rose 3 percent. Ashley earned a

Accepted Answer

A) ​real interest rate of -1 percent due to inflation. 
B) ​real interest rate of 1 percent due to inflation. 
C) ​nominal interest rate of -1 percent due to inflation. 
D) ​nominal interest rate of 1 percent due to inflation. 
A) ​real interest rate of -1 percent due to inflation. 
B) ​real interest rate of 1 percent due to inflation. 
C) ​nominal interest rate of -1 percent due to inflation. 
D) ​nominal interest rate of 1 percent due to inflation.

Question 7

When inflation rises, people tend to go to the bank

Accepted Answer

A) more often, giving rise to menu costs. 
B) more often, giving rise to shoeleather costs. 
C) less often, giving rise to redistribution costs. 
D) less often, thereby lessening the severity of the inflation tax. 
A) more often, giving rise to menu costs. 
B) more often, giving rise to shoeleather costs. 
C) less often, giving rise to redistribution costs. 
D) less often, thereby lessening the severity of the inflation tax.

Question 8

A decrease in the money supply creates an excess

Accepted Answer

A) supply of money that is eliminated by rising prices. 
B) supply of money that is eliminated by falling prices. 
C) demand for money that is eliminated by rising prices. 
D) demand for money that is eliminated by falling prices. 
A) supply of money that is eliminated by rising prices. 
B) supply of money that is eliminated by falling prices. 
C) demand for money that is eliminated by rising prices. 
D) demand for money that is eliminated by falling prices.

Question 9

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 10

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A) deflation; 2 percent 
B) deflation; 10 percent 
C) inflation; 2 percent 
D) inflation; 10 percent 
A) deflation; 2 percent 
B) deflation; 10 percent 
C) inflation; 2 percent 
D) inflation; 10 percent

Question 11

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Accepted Answer

A) both the upward trend in real GDP and the upward trend in the price level 
B) the upward trend in real GDP but not the upward trend in the price level 
C) the upward trend in the price level but not the upward trend in real GDP 
D) neither the upward trend in the price level nor the upward trend in real GDP 
A) both the upward trend in real GDP and the upward trend in the price level 
B) the upward trend in real GDP but not the upward trend in the price level 
C) the upward trend in the price level but not the upward trend in real GDP 
D) neither the upward trend in the price level nor the upward trend in real GDP

Question 12

In the U.S., people are required to pay taxes on

Accepted Answer

A) nominal interest earnings, irrespective of their real interest earnings. 
B) real interest earnings, irrespective of their nominal interest earnings. 
C) real capital gains, irrespective of their nominal capital gains. 
D) All of the above are correct. 
A) nominal interest earnings, irrespective of their real interest earnings. 
B) real interest earnings, irrespective of their nominal interest earnings. 
C) real capital gains, irrespective of their nominal capital gains. 
D) All of the above are correct.

Question 13

In order to maintain stable prices, a central bank must

Accepted Answer

A) maintain low interest rates. 
B) keep unemployment low. 
C) tightly control the money supply. 
D) sell indexed bonds. 
A) maintain low interest rates. 
B) keep unemployment low. 
C) tightly control the money supply. 
D) sell indexed bonds.

Question 14

Monetary neutrality means that a change in the money supply

Accepted Answer

A) does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run. 
B) does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run. 
C) does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run. 
D) does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run. 
A) does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run. 
B) does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run. 
C) does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run. 
D) does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.

Question 15

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

Accepted Answer

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

Question 16

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) Inflation is 3 percent; the tax rate is 25 percent. 
B) Inflation is 1 percent; the tax rate is 50 percent. 
C) Inflation is 1 percent; the tax rate is 55 percent. 
D) Inflation is 4 percent; the tax rate is 10 percent. 
A) Inflation is 3 percent; the tax rate is 25 percent. 
B) Inflation is 1 percent; the tax rate is 50 percent. 
C) Inflation is 1 percent; the tax rate is 55 percent. 
D) Inflation is 4 percent; the tax rate is 10 percent.

Question 18

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 19

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Accepted Answer

A) .03(1-.20) 
B) .04(1 -.20) 
C) .04(1 - .20) - .01 
D) None of the above is correct. 
A) .03(1-.20) 
B) .04(1 -.20) 
C) .04(1 - .20) - .01 
D) None of the above is correct.

Question 20

When the price level rises, 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

Exam 30: Money Growth and Inflation

Inflation can be measured by the

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Real GDP measures output of final goods and services in physical units.

What are menu costs and why does high inflation increase menu costs?

The inflation tax refers to

Ashley puts money in a savings account at her bank earning 2 percent interest. One year later she takes her money out and notes that prices rose 3 percent. Ashley earned a

When inflation rises, people tend to go to the bank

A decrease in the money supply creates an excess

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

In the U.S., people are required to pay taxes on

In order to maintain stable prices, a central bank must

Monetary neutrality means that a change in the money supply

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

The quantity theory of money can explain hyperinflations but not moderate inflation.

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

The quantity equation is M x V = P x Y.

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

When the price level rises, the number of dollars needed to buy a representative basket of goods

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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