Question 1

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha

Question 2

According to the classical dichotomy,when the money supply doubles,which of the following also double?

Accepted Answer

A) the price level 
B) nominal wages 
C) nominal GDP 
D) All of the above are correct. 
A) the price level 
B) nominal wages 
C) nominal GDP 
D) All of the above are correct.

Question 3

High and unexpected inflation has a greater cost

Accepted Answer

A) for those who save than those who borrow. 
B) for those who hold a little money than for those who hold a lot of money. 
C) for those whose wages increase by as much as inflation, than those who are paid a fixed nominal wage. 
D) for savers in low income tax brackets than for savers in high income tax brackets. 
A) for those who save than those who borrow. 
B) for those who hold a little money than for those who hold a lot of money. 
C) for those whose wages increase by as much as inflation, than those who are paid a fixed nominal wage. 
D) for savers in low income tax brackets than for savers in high income tax brackets.

Question 4

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Accepted Answer

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

Question 5

The U.S.Treasury Department began issuing inflation-indexed bonds in early 1997.Since these assets are virtually risk free,both in terms of default risk and inflation risk,will they quickly replace all other kinds of assets that still entail risk of one kind or another,such as ordinary government bonds or corporate bonds? Explain.

Accepted Answer

When individuals are choosing between as

Question 6

When the money market is drawn with the value of money on the vertical axis,the money demand curve slopes

Accepted Answer

A) upward because at higher prices people want to hold more money. 
B) downward because at higher prices people want to hold more money. 
C) downward because at higher price people want to hold less money. 
D) upward, because at higher prices people want to hold less money. 
A) upward because at higher prices people want to hold more money. 
B) downward because at higher prices people want to hold more money. 
C) downward because at higher price people want to hold less money. 
D) upward, because at higher prices people want to hold less money.

Question 7

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 8

Real GDP measures

Accepted Answer

A) the total quantity of final goods and services produced. 
B) the dollar value of the economy's output of final goods and services. 
C) the total income received from producing final goods and services at current prices. 
D) All of the above are correct. 
A) the total quantity of final goods and services produced. 
B) the dollar value of the economy's output of final goods and services. 
C) the total income received from producing final goods and services at current prices. 
D) All of the above are correct.

Question 9

Printing money to finance government expenditures

Accepted Answer

A) causes the value of money to rise. 
B) imposes a tax on everyone who holds money. 
C) is the principle method by which the U.S.government finances its expenditures. 
D) None of the above is correct. 
A) causes the value of money to rise. 
B) imposes a tax on everyone who holds money. 
C) is the principle method by which the U.S.government finances its expenditures. 
D) None of the above is correct.

Question 10

The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that the United States unexpectedly decided to pay off its debt by printing new money.Which of the following would happen?

Accepted Answer

A) People who held money would feel poorer. 
B) Prices would rise. 
C) People who had lent money at a fixed interest rate would feel poorer. 
D) All of the above are correct. 
A) People who held money would feel poorer. 
B) Prices would rise. 
C) People who had lent money at a fixed interest rate would feel poorer. 
D) All of the above are correct.

Question 12

Mary takes out a fixed interest rate loan and then inflation rises more than expected.The real interest rate she pays is

Accepted Answer

A) higher than she'd expected, and the real value of the loan rises. 
B) higher than she'd expected, and the real value of the loan falls. 
C) lower than she'd expected, and the real value of the loan rises. 
D) lower then she'd expected, and the real value of the loan falls. 
A) higher than she'd expected, and the real value of the loan rises. 
B) higher than she'd expected, and the real value of the loan falls. 
C) lower than she'd expected, and the real value of the loan rises. 
D) lower then she'd expected, and the real value of the loan falls.

Question 13

Which of the following is not implied by the quantity equation?

Accepted Answer

A) If velocity is stable, an increase in the money supply creates a proportional increase in nominal output. 
B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C) With constant money supply and output, an increase in velocity creates an increase in the price level. 
D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level. 
A) If velocity is stable, an increase in the money supply creates a proportional increase in nominal output. 
B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. 
C) With constant money supply and output, an increase in velocity creates an increase in the price level. 
D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

Question 14

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

Accepted Answer

A) a shortage that will increase spending. 
B) a shortage that will reduce spending. 
C) a surplus that will increase spending. 
D) a surplus that will reduce spending. 
A) a shortage that will increase spending. 
B) a shortage that will reduce spending. 
C) a surplus that will increase spending. 
D) a surplus that will reduce spending.

Question 15

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A) moved together, which is consistent with quantity theory. 
B) moved together, which is not consistent with quantity theory. 
C) did not move closely with each other, which is consistent with quantity theory. 
D) did not move closely with each other, which is not consistent with quantity theory. 
A) moved together, which is consistent with quantity theory. 
B) moved together, which is not consistent with quantity theory. 
C) did not move closely with each other, which is consistent with quantity theory. 
D) did not move closely with each other, which is not consistent with quantity theory.

Question 16

If the real interest rate is 8 percent and there is a deflation rate of 4 percent,what is the nominal interest rate?

Accepted Answer

A) 1/2 percent 
B) 2 percent 
C) 4 percent 
D) 8 percent 
A) 1/2 percent 
B) 2 percent 
C) 4 percent 
D) 8 percent

Question 17

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

Accepted Answer

A) Inflation is 4 percent; the tax rate is 25 percent. 
B) Inflation is 3 percent; the tax rate is 20 percent. 
C) Inflation is 2 percent; the tax rate is 15 percent. 
D) The after-tax real interest rate is the same for all of the above. 
A) Inflation is 4 percent; the tax rate is 25 percent. 
B) Inflation is 3 percent; the tax rate is 20 percent. 
C) Inflation is 2 percent; the tax rate is 15 percent. 
D) The after-tax real interest rate is the same for all of the above.

Question 18

If the Fed raises the money supply,then 1/P

Accepted Answer

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

Question 19

Whitney puts money in a savings account at her bank earning 3.5 percent.One year later she takes her money out and notes that while her money was earning interest,prices rose 1.5 percent.Whitney earned a nominal interest rate of

Accepted Answer

A) 3.5 percent and a real interest rate of 5 percent. 
B) 3.5 percent and a real interest rate of 2 percent. 
C) 5 percent and a real interest rate of 3.5 percent 
D) 5 percent and a real interest rate of 2 percent 
A) 3.5 percent and a real interest rate of 5 percent. 
B) 3.5 percent and a real interest rate of 2 percent. 
C) 5 percent and a real interest rate of 3.5 percent 
D) 5 percent and a real interest rate of 2 percent

Question 20

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th

Exam 30: Money Growth and Inflation

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

According to the classical dichotomy,when the money supply doubles,which of the following also double?

High and unexpected inflation has a greater cost

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

When the money market is drawn with the value of money on the vertical axis,the money demand curve slopes

According to the classical dichotomy,what changes nominal variables? What changes real variables?

Real GDP measures

Printing money to finance government expenditures

The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Suppose that the United States unexpectedly decided to pay off its debt by printing new money.Which of the following would happen?

Mary takes out a fixed interest rate loan and then inflation rises more than expected.The real interest rate she pays is

Which of the following is not implied by the quantity equation?

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

The evidence from hyperinflations indicates that money growth and inflation

If the real interest rate is 8 percent and there is a deflation rate of 4 percent,what is the nominal interest rate?

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

If the Fed raises the money supply,then 1/P

Whitney puts money in a savings account at her bank earning 3.5 percent.One year later she takes her money out and notes that while her money was earning interest,prices rose 1.5 percent.Whitney earned a nominal interest rate of

List and define any two of the costs of high inflation.

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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