Question 1

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

Accepted Answer

A) demand for money that is represented by the distance between points B and D. 
B) demand for money that is represented by the distance between points B and C. 
C) supply of money that is represented by the distance between points B and D. 
D) supply of money that is represented by the distance between points B and C. 
A) demand for money that is represented by the distance between points B and D. 
B) demand for money that is represented by the distance between points B and C. 
C) supply of money that is represented by the distance between points B and D. 
D) supply of money that is represented by the distance between points B and C.

Question 2

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Accepted Answer

The after- tax nominal interes

Question 5

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was

Accepted Answer

A) 10 percent and the inflation rate was 6 percent. 
B) 6 percent and the inflation rate was 2 percent. 
C) 4 percent and the inflation rate was 2 percent. 
D) 10 percent and the inflation rate was 4 percent. 
A) 10 percent and the inflation rate was 6 percent. 
B) 6 percent and the inflation rate was 2 percent. 
C) 4 percent and the inflation rate was 2 percent. 
D) 10 percent and the inflation rate was 4 percent.

Question 6

When the Consumer Price Index increases from 100 to 115

Accepted Answer

A) more money is needed to buy the same amount of goods, so the value of money falls. 
B) more money is needed to buy the same amount of goods, so the value of money rises. 
C) less money is needed to buy the same amount of goods, so the value of money falls. 
D) less money is needed to buy the same amount of goods, so the value of money rises. 
A) more money is needed to buy the same amount of goods, so the value of money falls. 
B) more money is needed to buy the same amount of goods, so the value of money rises. 
C) less money is needed to buy the same amount of goods, so the value of money falls. 
D) less money is needed to buy the same amount of goods, so the value of money rises.

Question 7

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 8

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 9

According to the assumptions of the quantity theory of money, if the money supply decreases by 4 percent, then

Accepted Answer

A) nominal and real GDP would fall by 4 percent. 
B) nominal GDP would fall by 4 percent; real GDP would be unchanged. 
C) nominal GDP would be unchanged; real GDP would fall by 0.40 percent. 
D) neither nominal GDP nor real GDP would change. 
A) nominal and real GDP would fall by 4 percent. 
B) nominal GDP would fall by 4 percent; real GDP would be unchanged. 
C) nominal GDP would be unchanged; real GDP would fall by 0.40 percent. 
D) neither nominal GDP nor real GDP would change.

Question 10

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Accepted Answer

A) True 
 B)False

Question 11

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False

Question 12

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Accepted Answer

The answer of In the early 1920s U.S. consumer prices...

Question 13

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 14

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

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

Question 16

Suppose a burger costs $6. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A) $16.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B) $50.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
C) 10 burgers.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D) 50 burgers.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
A) $16.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold more dollars. 
B) $50.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
C) 10 burgers.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D) 50 burgers.If the price of burgers rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 17

Economists generally argue that

Accepted Answer

A) neither high inflation nor moderate inflation is very costly. 
B) costs of both high and moderate inflation are quite large. 
C) high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes. 
D) costs of moderate inflation are nearly zero whereas high inflation is quite costly. 
A) neither high inflation nor moderate inflation is very costly. 
B) costs of both high and moderate inflation are quite large. 
C) high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes. 
D) costs of moderate inflation are nearly zero whereas high inflation is quite costly.

Question 18

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 19

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

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

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

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

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was

When the Consumer Price Index increases from 100 to 115

Hyperinflations are associated with governments printing money to finance expenditures.

The inflation rate is measured as the percentage change in a price index.

According to the assumptions of the quantity theory of money, if the money supply decreases by 4 percent, then

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

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

Dollar prices and relative prices are both nominal variables.

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

Suppose a burger costs $6. Molly holds $60. What is the real value of the money she holds?

Economists generally argue that

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

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

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

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

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.