Exam 12: Money, Interest, and Inflation

Assume an economy begins with zero inflation, a 25 percent income tax rate, and a real interest rate of 4 percent.If inflation rises to 4 percent, the nominal interest rate becomes ________ percent and the after-tax real interest becomes ________ percent.

The nominal interest rate is 12 percent and the inflation rate is 4 percent.The opportunity cost of holding a dollar for a year is

The opportunity cost of holding money instead of an interest earning asset is the

"Inflation reduces the velocity of money because people reduce their money holdings." Is the previous statement correct or incorrect? Explain your answer.

-In the above figure, if the interest rate is 8 percent per year, the quantity of money demanded is

As the nominal interest rate increases, the opportunity cost of holding money ________ and the quantity of money demanded ________.

How would a widespread adoption of credit cards affect the demand for money and the demand for money curve?

In the figure below, label the axes and then draw a demand for money curve.Illustrate an increase in the demand for money.

According to the equation of exchange, if the quantity of money is $20 billion, velocity 3, and real GDP is $6 billion, then the price level is

Explain the "shoe-leather" costs of inflation.

In a period of hyperinflation, the velocity of circulation increases because

Suppose the quantity of money is greater than the quantity of money demanded.In the short run, what occurs to set the quantity of money equal to the quantity of money demanded?

If inflation is making it difficult for people to estimate the true marginal benefits and true marginal costs of activities, inflation is leading to

Assume you have a credit card balance of $2,000 at 15 percent and the inflation rate is 3 percent.What are the nominal and real interest rates?

If the inflation rate increases,

If the inflation rate is zero, the nominal interest rate is

If the interest rate rises from 1 percent to 3 percent, the ________ decreases and the opportunity cost of holding money ________.

Which of the following statements is correct?

-In the figure above, in the long run what happens if the Fed increases the quantity of money by 5 percent?

If the inflation rate is 5 percent and the real interest rate is 2.5 percent, then the nominal interest rate is