Question 1

Shoeleather costs refer to

Accepted Answer

A) the cost of more frequent price changes induced by higher inflation. 
B) the distortion in resource allocation created by distortions in relative prices due to inflation. 
C) resources used to maintain lower money holdings when inflation is high. 
D) the tendency for more effort searching for the lowest price when inflation is high. 
A) the cost of more frequent price changes induced by higher inflation. 
B) the distortion in resource allocation created by distortions in relative prices due to inflation. 
C) resources used to maintain lower money holdings when inflation is high. 
D) the tendency for more effort searching for the lowest price when inflation is high.

Question 2

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent.What is the real interest rate?

Accepted Answer

A) 7 percent 
B) 5.5 percent 
C) 1.75 percent 
D) 1.5 percent 
A) 7 percent 
B) 5.5 percent 
C) 1.75 percent 
D) 1.5 percent

Question 3

According to the principle of monetary neutrality,a decrease in the money supply will not change

Accepted Answer

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

Question 4

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Accepted Answer

A) nominal GDP and nominal interest rates 
B) real wages and real GDP 
C) the price level and nominal GDP 
D) None of the above is correct. 
A) nominal GDP and nominal interest rates 
B) real wages and real GDP 
C) the price level and nominal GDP 
D) None of the above is correct.

Question 5

Economists all agree that

Accepted Answer

A) neither high inflation nor moderate inflation is very costly. 
B) both high and moderate inflation are quite costly. 
C) high inflation is costly, but disagree about the costs of moderate inflation. 
D) moderate inflation is as costly as high inflation. 
A) neither high inflation nor moderate inflation is very costly. 
B) both high and moderate inflation are quite costly. 
C) high inflation is costly, but disagree about the costs of moderate inflation. 
D) moderate inflation is as costly as high inflation.

Question 6

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

Accepted Answer

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

Question 7

People can reduce the inflation tax by

Accepted Answer

A) reducing savings. 
B) increasing deductions on their income tax. 
C) reducing cash holdings. 
D) None of the above is correct. 
A) reducing savings. 
B) increasing deductions on their income tax. 
C) reducing cash holdings. 
D) None of the above is correct.

Question 8

The nominal interest rate is 5 percent and the real interest rate is 2 percent.What is the inflation rate?

Accepted Answer

A) 10 percent 
B) 7 percent 
C) 3 percent 
D) 2.5 percent 
A) 10 percent 
B) 7 percent 
C) 3 percent 
D) 2.5 percent

Question 9

The price level rises from 120 to 126.What is the inflation rate?

Accepted Answer

A) 3% 
B) 5% 
C) 6% 
D) None of the above is correct. 
A) 3% 
B) 5% 
C) 6% 
D) None of the above is correct.

Question 10

The claim that increases in the growth rate of the money supply increase nominal but not real interest rates is known as the

Accepted Answer

A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) None of the above is correct. 
A) Friedman Effect. 
B) Hume Effect. 
C) Fisher Effect. 
D) None of the above is correct.

Question 11

If the price index in some country were falling over time,economists would say that country had

Accepted Answer

A) disinflation. 
B) deflation. 
C) a contraction. 
D) an inverted inflation. 
A) disinflation. 
B) deflation. 
C) a contraction. 
D) an inverted inflation.

Question 12

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 20,000 deera (the local currency)in 1960 when the price index equaled 100.In 2002,the person sold the land for 100,000 deera,and the price index equaled 600.The tax rate on nominal gains was 20%.Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real capital gain.

Accepted Answer

A) 64,000 deera 
B) -36,000 deera 
C) -16,667 deera 
D) -$3,333 deera 
A) 64,000 deera 
B) -36,000 deera 
C) -16,667 deera 
D) -$3,333 deera

Question 13

According to the quantity equation,if P = 12,Y = 6,and M= 8,then V =

Accepted Answer

A) 16. 
B) 9. 
C) 4. 
D) None of the above is correct. 
A) 16. 
B) 9. 
C) 4. 
D) None of the above is correct.

Question 14

You put money in an account that earns a 5 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A) 3.4 percent 
B) 1.6 percent 
C) 1 percent 
D) None of the above is correct. 
A) 3.4 percent 
B) 1.6 percent 
C) 1 percent 
D) None of the above is correct.

Question 15

Which of the following is correct?

Accepted Answer

A) The Continental Congress used the inflation tax to help finance the American Revolution. 
B) The inflation tax has been a principle source of revenue for the U.S.government. 
C) There is no way a person can avoid the inflation tax. 
D) None of the above is correct. 
A) The Continental Congress used the inflation tax to help finance the American Revolution. 
B) The inflation tax has been a principle source of revenue for the U.S.government. 
C) There is no way a person can avoid the inflation tax. 
D) None of the above is correct.

Question 16

Suppose that monetary neutrality holds and that velocity is constant.A 5% increase in the money supply

Accepted Answer

A) increases the price level by more than 5%. 
B) increases the price level by 5%. 
C) increases the price level by 4%. 
D) does not change the price level. 
A) increases the price level by more than 5%. 
B) increases the price level by 5%. 
C) increases the price level by 4%. 
D) does not change the price level.

Question 17

Given a nominal interest rate of 5 percent,in which case below would you earn the highest after-tax real rate of interest?

Accepted Answer

A) Inflation is 3 percent; the tax rate is 20 percent. 
B) Inflation is 2 percent; the tax rate is 40 percent. 
C) Inflation is 1 percent; the tax rate is 60 percent. 
D) The after-tax real interest rate is the same for all of the above. 
A) Inflation is 3 percent; the tax rate is 20 percent. 
B) Inflation is 2 percent; the tax rate is 40 percent. 
C) Inflation is 1 percent; the tax rate is 60 percent. 
D) The after-tax real interest rate is the same for all of the above.

Question 18

If Y and V are constant,and M doubles,the quantity equation implies that the price level

Accepted Answer

A) more than doubles. 
B) changes but less than doubles. 
C) doubles. 
D) does not change 
A) more than doubles. 
B) changes but less than doubles. 
C) doubles. 
D) does not change

Question 19

The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

Accepted Answer

A) 6 percent 
B) 5 percent 
C) 1.5 percent 
D) 1 percent 
A) 6 percent 
B) 5 percent 
C) 1.5 percent 
D) 1 percent

Question 20

The inflation tax

Accepted Answer

A) transfers wealth from the government to households. 
B) is the increase in income taxes due to lack of indexation. 
C) is a tax on everyone who holds money. 
D) All of the above are correct. 
A) transfers wealth from the government to households. 
B) is the increase in income taxes due to lack of indexation. 
C) is a tax on everyone who holds money. 
D) All of the above are correct.

Exam 30: Money Growth and Inflation

Shoeleather costs refer to

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent.What is the real interest rate?

According to the principle of monetary neutrality,a decrease in the money supply will not change

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Economists all agree that

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

People can reduce the inflation tax by

The nominal interest rate is 5 percent and the real interest rate is 2 percent.What is the inflation rate?

The price level rises from 120 to 126.What is the inflation rate?

The claim that increases in the growth rate of the money supply increase nominal but not real interest rates is known as the

If the price index in some country were falling over time,economists would say that country had

According to the quantity equation,if P = 12,Y = 6,and M= 8,then V =

You put money in an account that earns a 5 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Which of the following is correct?

Suppose that monetary neutrality holds and that velocity is constant.A 5% increase in the money supply

Given a nominal interest rate of 5 percent,in which case below would you earn the highest after-tax real rate of interest?

If Y and V are constant,and M doubles,the quantity equation implies that the price level

The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

The inflation tax

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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