Question 1

If the price level increased from 120 to 150, then what was the inflation rate?

Accepted Answer

A) 30 percent 
B) 25 percent 
C) 20 percent 
D) None of the above is correct. 
A) 30 percent 
B) 25 percent 
C) 20 percent 
D) None of the above is correct.

Question 2

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

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

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

Accepted Answer

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

Question 5

Economic variables whose values are measured in monetary units 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 6

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Accepted Answer

A) $40. If the price of goods rises, to maintain the real value of her money holdings she need to hold more dollars. 
B) 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
C) $40. If the price of goods rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
D) 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
A) $40. If the price of goods rises, to maintain the real value of her money holdings she need to hold more dollars. 
B) 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. 
C) $40. If the price of goods rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
D) 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 7

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent . This difference between actual and expected inflation

Accepted Answer

A) transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected. 
B) transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected. 
C) transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected. 
D) transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected. 
A) transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected. 
B) transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected. 
C) transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected. 
D) transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.

Question 8

The inflation tax

Accepted Answer

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

Question 9

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 17-3. Suppose the relevant money-supply curve is the one labeled MS2; also suppose the economy's real GDP is 45,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately

Accepted Answer

A) 4.5 
B) 6.0 
C) 9.0 
D) 12.0 
A) 4.5 
B) 6.0 
C) 9.0 
D) 12.0

Question 10

Given a nominal interest rate of 5 percent, in which of the following cases 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 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 earn 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 earn 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

If there is inflation, then a firm that has kept its price fixed for some time will have a

Accepted Answer

A) high relative price. Relative-price variability rises as the inflation rate rises. 
B) high relative price. Relative-price variability falls as the inflation rate rises. 
C) low relative price. Relative-price variability rises as the inflation rate rises. 
D) low relative price. Relative-price variability falls as the inflation rate rises. 
A) high relative price. Relative-price variability rises as the inflation rate rises. 
B) high relative price. Relative-price variability falls as the inflation rate rises. 
C) low relative price. Relative-price variability rises as the inflation rate rises. 
D) low relative price. Relative-price variability falls as the inflation rate rises.

Question 13

In which case below is the real interest rate the highest?

Accepted Answer

A) the nominal interest rate = 4% and inflation = 3% 
B) the nominal interest rate = 3% and inflation = 1% 
C) the nominal interest rate = 2% and inflation = -2% 
D) the nominal interest rate = 1% and inflation = -4% 
A) the nominal interest rate = 4% and inflation = 3% 
B) the nominal interest rate = 3% and inflation = 1% 
C) the nominal interest rate = 2% and inflation = -2% 
D) the nominal interest rate = 1% and inflation = -4%

Question 14

The data on hyperinflation show a clear link between the quantity of money and

Accepted Answer

A) the price level. 
B) growth rate of GDP. 
C) unemployment rate. 
D) velocity. 
A) the price level. 
B) growth rate of GDP. 
C) unemployment rate. 
D) velocity.

Question 15

Market economies rely on which of the following to allocate scarce resources?

Accepted Answer

A) government 
B) consumers 
C) relative prices 
D) real interest rates 
A) government 
B) consumers 
C) relative prices 
D) real interest rates

Question 16

When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases?

Accepted Answer

A) the quantity of money demanded and the quantity of money supplied 
B) the quantity of money demanded but not the quantity of money supplied 
C) the quantity of money supplied but not the quantity of money demanded 
D) neither the quantity of money supplied nor the quantity of money demanded 
A) the quantity of money demanded and the quantity of money supplied 
B) the quantity of money demanded but not the quantity of money supplied 
C) the quantity of money supplied but not the quantity of money demanded 
D) neither the quantity of money supplied nor the quantity of money demanded

Question 17

Banks advertise

Accepted Answer

A) the real interest rate, which is how fast the dollar value of savings grows. 
B) the real interest rate, which is how fast the purchasing power of savings grows. 
C) the nominal interest rate, which is how fast the dollar value of savings grows. 
D) the nominal interest rate, which is how fast the purchasing power of savings grows. 
A) the real interest rate, which is how fast the dollar value of savings grows. 
B) the real interest rate, which is how fast the purchasing power of savings grows. 
C) the nominal interest rate, which is how fast the dollar value of savings grows. 
D) the nominal interest rate, which is how fast the purchasing power of savings grows.

Question 18

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A) are positively related, which is consistent with the quantity theory of money. 
B) are positively related, which is not consistent with the quantity theory of money. 
C) are not related in a discernible fashion, which is consistent with the quantity theory of money. 
D) are not related in a discernible fashion, which is not consistent with the quantity theory of money. 
A) are positively related, which is consistent with the quantity theory of money. 
B) are positively related, which is not consistent with the quantity theory of money. 
C) are not related in a discernible fashion, which is consistent with the quantity theory of money. 
D) are not related in a discernible fashion, which is not consistent with the quantity theory of money.

Question 19

Which of the following is an example of menu costs?

Accepted Answer

A) deciding on new prices 
B) printing new price lists 
C) advertising new prices 
D) All of the above are examples of menu costs. 
A) deciding on new prices 
B) printing new price lists 
C) advertising new prices 
D) All of the above are examples of menu costs.

Question 20

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A) decreases the price level by 2 percent. 
B) decreases the price level by less than 2 percent. 
C) increases the price level by less than 2 percent. 
D) increases the price level by 2 percent. 
A) decreases the price level by 2 percent. 
B) decreases the price level by less than 2 percent. 
C) increases the price level by less than 2 percent. 
D) increases the price level by 2 percent.

Exam 17: Money Growth and Inflation

If the price level increased from 120 to 150, then what was the inflation rate?

An increase in money demand would create a surplus of money at the original value of money.

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

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

Economic variables whose values are measured in monetary units are called

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent . This difference between actual and expected inflation

The inflation tax

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

Money demand refers to

If there is inflation, then a firm that has kept its price fixed for some time will have a

In which case below is the real interest rate the highest?

The data on hyperinflation show a clear link between the quantity of money and

Market economies rely on which of the following to allocate scarce resources?

When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases?

Banks advertise

The evidence from hyperinflations indicates that money growth and inflation

Which of the following is an example of menu costs?

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

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