Question 1

The inflation tax

Accepted Answer

A) is an alternative to income taxes and government borrowing. 
B) taxes most those who hold the most money. 
C) is the revenue created when the government prints money. 
D) All of the above are correct. 
A) is an alternative to income taxes and government borrowing. 
B) taxes most those who hold the most money. 
C) is the revenue created when the government prints money. 
D) All of the above are correct.

Question 2

Given a nominal interest rate of 8 percent,in which case below would you earn the highest after-tax real interest rate?

Accepted Answer

A) Inflation is 5 percent; the tax rate is 20 percent. 
B) Inflation is 4 percent; the tax rate is 30 percent. 
C) Inflation is 3 percent; the tax rate is 40 percent. 
D) The after-tax real interest rate is the same for all of the above. 
A) Inflation is 5 percent; the tax rate is 20 percent. 
B) Inflation is 4 percent; the tax rate is 30 percent. 
C) Inflation is 3 percent; the tax rate is 40 percent. 
D) The after-tax real interest rate is the same for all of the above.

Question 3

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply shifts the money supply curve to the

Accepted Answer

A) right, lowering the price level. 
B) right, raising the price level. 
C) left, raising the price level. 
D) left, lowering the price level. 
A) right, lowering the price level. 
B) right, raising the price level. 
C) left, raising the price level. 
D) left, lowering the price level.

Question 4

You put money in the bank.The increase in the dollar value of your savings

Accepted Answer

A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable, but the change in the number goods you can buy with your savings is a real variable. 
D) is a real variable, but the change in the number of goods you buy with your savings is a nominal variable. 
A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable, but the change in the number goods you can buy with your savings is a real variable. 
D) is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

Question 5

When the money market is drawn with the value of money on the vertical axis,if the Fed sells bonds then

Accepted Answer

A) the money supply and the price level increase. 
B) the money supply and the price level decrease. 
C) the money supply increases and the price level decreases. 
D) the money supply increases and the price level increases. 
A) the money supply and the price level increase. 
B) the money supply and the price level decrease. 
C) the money supply increases and the price level decreases. 
D) the money supply increases and the price level increases.

Question 6

When prices are falling,economists say that there is

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 7

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

Accepted Answer

A) both the price level and real GDP would rise by 5%. 
B) the price level would rise by 5% and real GDP would be unchanged. 
C) the price level would be unchanged and real GDP would rise by 5%. 
D) both the price level and real GDP would be unchanged. 
A) both the price level and real GDP would rise by 5%. 
B) the price level would rise by 5% and real GDP would be unchanged. 
C) the price level would be unchanged and real GDP would rise by 5%. 
D) both the price level and real GDP would be unchanged.

Question 8

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Accepted Answer

A) both the nominal and the real interest rate fall. 
B) neither the nominal nor the real interest rate fall. 
C) the nominal interest rate falls, but the real interest rate does not. 
D) the real interest rate falls, but the nominal interest rate does not. 
A) both the nominal and the real interest rate fall. 
B) neither the nominal nor the real interest rate fall. 
C) the nominal interest rate falls, but the real interest rate does not. 
D) the real interest rate falls, but the nominal interest rate does not.

Question 9

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 10

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A) is irrelevant for understanding the determinants of nominal and real variables. 
B) determines nominal variables, but not real variables. 
C) determines real variables, but not nominal variables. 
D) is a determinant of both real and nominal variables. 
A) is irrelevant for understanding the determinants of nominal and real variables. 
B) determines nominal variables, but not real variables. 
C) determines real variables, but not nominal variables. 
D) is a determinant of both real and nominal variables.

Question 11

Suppose that over some period the money supply tripled,velocity was unchanged,and real GDP doubled.According to the quantity equation the price level is now

Accepted Answer

A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) .75 times its old value 
A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) .75 times its old value

Question 12

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases,there is

Question 13

According to quantity equation the price level would change less the proportionately with a rise in the money supply if there were also

Accepted Answer

A) either a rise in output or a rise in velocity. 
B) either a rise in output or a fall in velocity. 
C) either a fall in output or a rise in velocity. 
D) either a fall in output or a fall in velocity. 
A) either a rise in output or a rise in velocity. 
B) either a rise in output or a fall in velocity. 
C) either a fall in output or a rise in velocity. 
D) either a fall in output or a fall in velocity.

Question 14

The money supply in Tazland is $100 billion.Nominal GDP is $800 billion and real GDP is $200 billion.What are the price level and velocity in Tazland?

Accepted Answer

A) the price level and velocity are both 8 
B) the price level is 8 and velocity is 4 
C) the price level and velocity are both 4 
D) the price level is 4 and velocity is 8 
A) the price level and velocity are both 8 
B) the price level is 8 and velocity is 4 
C) the price level and velocity are both 4 
D) the price level is 4 and velocity is 8

Question 15

Open-market purchases by the Fed make the money supply

Accepted Answer

A) increase, which makes the value of money increase. 
B) increase, which makes the value of money decrease. 
C) decrease, which makes the value of money decrease. 
D) decrease, which makes the value of money increase. 
A) increase, which makes the value of money increase. 
B) increase, which makes the value of money decrease. 
C) decrease, which makes the value of money decrease. 
D) decrease, which makes the value of money increase.

Question 16

Which of the following is correct? Inflation

Accepted Answer

A) impedes financial markets in their role of allocating resources. 
B) reduces the purchasing power of the average consumer. 
C) generally increases after-tax real interest rates. 
D) is most costly when anticipated. 
A) impedes financial markets in their role of allocating resources. 
B) reduces the purchasing power of the average consumer. 
C) generally increases after-tax real interest rates. 
D) is most costly when anticipated.

Question 17

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 18

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

Accepted Answer

A) 3 percent. 
B) 4 percent. 
C) 8 percent. 
D) 12 percent. 
A) 3 percent. 
B) 4 percent. 
C) 8 percent. 
D) 12 percent.

Question 19

According to monetary neutrality and the Fisher effect,an increase in the money supply growth rate eventually increases

Accepted Answer

A) inflation, nominal interest rates, and real interest rates. 
B) inflation and nominal interest rates, but does not change real interest rates. 
C) inflation and real interest rates, but does not change nominal interest rates. 
D) neither inflation, nominal interest rates, or real interest rates. 
A) inflation, nominal interest rates, and real interest rates. 
B) inflation and nominal interest rates, but does not change real interest rates. 
C) inflation and real interest rates, but does not change nominal interest rates. 
D) neither inflation, nominal interest rates, or real interest rates.

Question 20

You put money in an account and earn a real interest rate of 6 percent,inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A) 4.8 percent 
B) 3.2 percent 
C) 2.8 percent 
D) None of the above is correct. 
A) 4.8 percent 
B) 3.2 percent 
C) 2.8 percent 
D) None of the above is correct.

Exam 30: Money Growth and Inflation

The inflation tax

Given a nominal interest rate of 8 percent,in which case below would you earn the highest after-tax real interest rate?

When the money market is drawn with the value of money on the vertical axis,an increase in the money supply shifts the money supply curve to the

You put money in the bank.The increase in the dollar value of your savings

When the money market is drawn with the value of money on the vertical axis,if the Fed sells bonds then

When prices are falling,economists say that there is

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

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

The classical dichotomy refers to the idea that the supply of money

Suppose that over some period the money supply tripled,velocity was unchanged,and real GDP doubled.According to the quantity equation the price level is now

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

According to quantity equation the price level would change less the proportionately with a rise in the money supply if there were also

The money supply in Tazland is $100 billion.Nominal GDP is $800 billion and real GDP is $200 billion.What are the price level and velocity in Tazland?

Open-market purchases by the Fed make the money supply

Which of the following is correct? Inflation

Nominal GDP measures output of final goods and services in physical terms.

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

According to monetary neutrality and the Fisher effect,an increase in the money supply growth rate eventually increases

You put money in an account and earn a real interest rate of 6 percent,inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

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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