Question 1

In the long run,an increase in the growth rate of the money supply leads to an increase in the real interest rate,but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

A) the inflation rate and nominal interest rates. 
B) the inflation rate, but not nominal interest rates. 
C) nominal interest rates, but not the inflation rate. 
D) neither the inflation rate nor nominal interest rates. 
A) the inflation rate and nominal interest rates. 
B) the inflation rate, but not nominal interest rates. 
C) nominal interest rates, but not the inflation rate. 
D) neither the inflation rate nor nominal interest rates.

Question 5

Most economists believe that monetary neutrality provides

Accepted Answer

A) a good description of both the long run and the short run. 
B) a good description of neither the long run nor the short run. 
C) a good description of the short run, but not the long run. 
D) a good description of the long run, but not the short run. 
A) a good description of both the long run and the short run. 
B) a good description of neither the long run nor the short run. 
C) a good description of the short run, but not the long run. 
D) a good description of the long run, but not the short run.

Question 6

Which of the following events in post-World War I Germany likely contributed to the rise of Nazism and World War II?

Accepted Answer

A) deflation that proved detrimental to farmers 
B) an aversion to inflation by policymakers that kept wages from rising 
C) an unexpected drop in inflation that hurt borrowers 
D) an extraordinarily high rate of inflation 
A) deflation that proved detrimental to farmers 
B) an aversion to inflation by policymakers that kept wages from rising 
C) an unexpected drop in inflation that hurt borrowers 
D) an extraordinarily high rate of inflation

Question 7

If real output in an economy is 1000 goods per year,the money supply is $300,and each dollar is spent an average of 3 times per year,then according to the quantity equation,the average price of goods is

Accepted Answer

A) $0.90. 
B) $1.00. 
C) $1.11. 
D) $1.33. 
A) $0.90. 
B) $1.00. 
C) $1.11. 
D) $1.33.

Question 8

The country of Veridian has a tax system identical to that of the United States.Suppose someone in Veridian bought a parcel of land for 10,000 deera (the local currency)in 1964 when the price index equaled 100.In 2005,the person sold the land for 100,000 deera,and the price index equaled 500.The tax rate on nominal capital gains was 20%.Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2005 prices to find the after-tax real capital gain.

Accepted Answer

A) $72,000 
B) $62,000 
C) $32,000 
D) $6,400 
A) $72,000 
B) $62,000 
C) $32,000 
D) $6,400

Question 9

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 10

The classical dichotomy argues that changes in the money supply

Accepted Answer

A) affect both nominal and real variables. 
B) affect neither nominal nor real variables. 
C) affect nominal variables, but not real variables. 
D) do not affect nominal variables, but do affect real variables. 
A) affect both nominal and real variables. 
B) affect neither nominal nor real variables. 
C) affect nominal variables, but not real variables. 
D) do not affect nominal variables, but do affect real variables.

Question 11

Money demand refers to

Accepted Answer

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

Question 12

The cost of changing price tags and price listings is known as

Accepted Answer

A) inflation-induced tax distortions. 
B) relative-price variability costs. 
C) shoeleather costs. 
D) menu costs. 
A) inflation-induced tax distortions. 
B) relative-price variability costs. 
C) shoeleather costs. 
D) menu costs.

Question 13

Economic variables whose values are measured in goods 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 14

Velocity is

Accepted Answer

A) Y/(M x P) and increases if dollars are exchanged less frequently. 
B) Y/(M x P) and increases if dollars are exchanged more frequently. 
C) (P x Y)/M and increases if dollars are exchanged less frequently. 
D) (P x Y)/M and increases if dollars are exchanged more frequently. 
A) Y/(M x P) and increases if dollars are exchanged less frequently. 
B) Y/(M x P) and increases if dollars are exchanged more frequently. 
C) (P x Y)/M and increases if dollars are exchanged less frequently. 
D) (P x Y)/M and increases if dollars are exchanged more frequently.

Question 15

Based on the quantity equation,if M = 100,V = 4,and Y = 200,then P =

Accepted Answer

A) 1/2. 
B) 2. 
C) 8. 
D) None of the above is correct. 
A) 1/2. 
B) 2. 
C) 8. 
D) None of the above is correct.

Question 16

For a given real interest rate,a decrease in the inflation rate would

Accepted Answer

A) decrease the after-tax real interest rate and so decrease saving. 
B) decrease the after-tax real interest rate and so increase saving. 
C) increase the after-tax real interest rate and so decrease saving. 
D) increase the after-tax real interest rate and so increase saving. 
A) decrease the after-tax real interest rate and so decrease saving. 
B) decrease the after-tax real interest rate and so increase saving. 
C) increase the after-tax real interest rate and so decrease saving. 
D) increase the after-tax real interest rate and so increase saving.

Question 17

The supply curve of money is vertical because the quantity of money supplied increases

Accepted Answer

A) when the value of money increases. 
B) when the value of money decreases. 
C) only if people desire to hold more money. 
D) only if the central bank increases the money supply. 
A) when the value of money increases. 
B) when the value of money decreases. 
C) only if people desire to hold more money. 
D) only if the central bank increases the money supply.

Question 18

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings.Income tax

Question 19

Which of the following is correct?

Accepted Answer

A) hyperinflation is a period of extraordinarily high inflation. 
B) deflation is negative inflation, not just a decrease in the inflation rate. 
C) during the 1990s US inflation averaged 2% per year. 
D) All of the above are correct. 
A) hyperinflation is a period of extraordinarily high inflation. 
B) deflation is negative inflation, not just a decrease in the inflation rate. 
C) during the 1990s US inflation averaged 2% per year. 
D) All of the above are correct.

Question 20

Which of the following statements about U.S.inflation is not correct?

Accepted Answer

A) Low inflation was viewed as a triumph of President Carter's economic policy. 
B) There were long periods in the nineteenth century during which prices fell. 
C) The U.S.public has viewed inflation of even 7 percent as a major economic problem. 
D) The U.S.inflation rate has varied over time, but international data shows even more variation. 
A) Low inflation was viewed as a triumph of President Carter's economic policy. 
B) There were long periods in the nineteenth century during which prices fell. 
C) The U.S.public has viewed inflation of even 7 percent as a major economic problem. 
D) The U.S.inflation rate has varied over time, but international data shows even more variation.

Exam 30: Money Growth and Inflation

In the long run,an increase in the growth rate of the money supply leads to an increase in the real interest rate,but no change in the nominal interest rate.

A decrease in the money supply creates an excess

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

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

Most economists believe that monetary neutrality provides

Which of the following events in post-World War I Germany likely contributed to the rise of Nazism and World War II?

If real output in an economy is 1000 goods per year,the money supply is $300,and each dollar is spent an average of 3 times per year,then according to the quantity equation,the average price of goods is

The source of all four classic hyperinflations was high rates of money growth.

The classical dichotomy argues that changes in the money supply

Money demand refers to

The cost of changing price tags and price listings is known as

Economic variables whose values are measured in goods are called

Velocity is

Based on the quantity equation,if M = 100,V = 4,and Y = 200,then P =

For a given real interest rate,a decrease in the inflation rate would

The supply curve of money is vertical because the quantity of money supplied increases

Explain how inflation affects savings.

Which of the following is correct?

Which of the following statements about U.S.inflation is not correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: 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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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