Question 1

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A) The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. 
B) The quantity theory but not evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. 
C) Evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland but not the quantity theory. 
D) Neither the quantity theory nor evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. 
A) The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. 
B) The quantity theory but not evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. 
C) Evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland but not the quantity theory. 
D) Neither the quantity theory nor evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Money demand refers to

Accepted Answer

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

Question 4

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

Accepted Answer

A) both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B) both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C) a nominal gain, but no real gain, and you paid taxes on the nominal gain. 
D) a nominal gain, but no real gain, and you paid no taxes on the transaction. 
A) both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B) both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C) a nominal gain, but no real gain, and you paid taxes on the nominal gain. 
D) a nominal gain, but no real gain, and you paid no taxes on the transaction.

Question 5

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Accepted Answer

deflation,

Question 6

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 7

Figure 30-1  
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 4, then the quantity of money

Accepted Answer

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

Question 8

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A) spend more time looking for bargains. 
B) spend less time looking for bargains. 
C) hold more money. 
D) hold less money. 
A) spend more time looking for bargains. 
B) spend less time looking for bargains. 
C) hold more money. 
D) hold less money.

Question 9

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci

Question 10

Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A) excess demand for money that will result in an increase in spending. 
B) excess demand for money that will result in a decrease in spending. 
C) excess supply of money that will result in an increase in spending. 
D) excess supply of money that will result in a decrease in spending. 
A) excess demand for money that will result in an increase in spending. 
B) excess demand for money that will result in a decrease in spending. 
C) excess supply of money that will result in an increase in spending. 
D) excess supply of money that will result in a decrease in spending.

Question 11

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

Accepted Answer

The answer of It takes more money to purchase the...

Question 12

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 13

If the price level increased from 115 to 133, then what was the inflation rate?

Accepted Answer

A) 1.2 percent 
B) 0.9 percent 
C) 15.7 percent 
D) 18.0 percent 
A) 1.2 percent 
B) 0.9 percent 
C) 15.7 percent 
D) 18.0 percent

Question 14

The economy of Umrica uses palladium as its money. If the government discovers a large reserve of palladium on their land the

Accepted Answer

A) supply of money decreases, the value of money rises, and prices fall. 
B) supply of money increases, the value of money falls, and prices rise. 
C) demand for money increases, the value of money rises, and prices rise. 
D) demand for money decreases, the value of money falls, and prices fall. 
A) supply of money decreases, the value of money rises, and prices fall. 
B) supply of money increases, the value of money falls, and prices rise. 
C) demand for money increases, the value of money rises, and prices rise. 
D) demand for money decreases, the value of money falls, and prices fall.

Question 15

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Accepted Answer

M x V = P

Question 16

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 17

The principle of monetary neutrality implies that an increase in the money supply will increase

Accepted Answer

A) real GDP and the price level. 
B) real GDP, but not the price level. 
C) the price level, but not real GDP. 
D) neither the price level nor real GDP. 
A) real GDP and the price level. 
B) real GDP, but not the price level. 
C) the price level, but not real GDP. 
D) neither the price level nor real GDP.

Question 18

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A) The nominal wage 
B) Real output 
C) Real interest rates 
D) The real wage 
A) The nominal wage 
B) Real output 
C) Real interest rates 
D) The real wage

Question 19

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 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

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

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

Money demand refers to

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

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

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.

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 4, then the quantity of money

Shoeleather costs arise when higher inflation rates induce people to

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

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

If the price level increased from 115 to 133, then what was the inflation rate?

The economy of Umrica uses palladium as its money. If the government discovers a large reserve of palladium on their land the

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Shoeleather costs and menu costs are both costs of anticipated inflation.

The principle of monetary neutrality implies that an increase in the money supply will increase

Which of the following can a country increase in the long run by increasing its money growth rate?

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%.

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 Nations 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

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

A decrease in the overall price level (or falling prices) is called _. An extraordinarily high rate of inflation is called _.

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 4, then the quantity of money

It takes more money to purchase the same amount of goods when prices _. Therefore, the value of your money has .

The quantity equation is expressed as _. The rate at which money changes hands is known as _.