Question 1

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A) real GDP 
B) unemployment 
C) nominal interest rates 
D) All of the above are correct. 
A) real GDP 
B) unemployment 
C) nominal interest rates 
D) All of the above are correct.

Question 2

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A) Increases in the price level can be created by increases in money demand. 
B) Nominal incomes tend to rise at the same time that the price level is rising. 
C) As the price level rises, the value of a dollar falls. 
D) Inflation only changes nominal variables. 
A) Increases in the price level can be created by increases in money demand. 
B) Nominal incomes tend to rise at the same time that the price level is rising. 
C) As the price level rises, the value of a dollar falls. 
D) Inflation only changes nominal variables.

Question 3

You put money into 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) 1.0 percent 
D) None of the above is correct. 
A) 3.4 percent 
B) 1.6 percent 
C) 1.0 percent 
D) None of the above is correct.

Question 4

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A) upward-sloping. 
B) downward-sloping. 
C) horizontal. 
D) vertical. 
A) upward-sloping. 
B) downward-sloping. 
C) horizontal. 
D) vertical.

Question 5

When inflation rises, people tend to go to the bank

Accepted Answer

A) more often, giving rise to menu costs. 
B) more often, giving rise to shoeleather costs. 
C) less often, giving rise to redistribution costs. 
D) less often, thereby lessening the severity of the inflation tax. 
A) more often, giving rise to menu costs. 
B) more often, giving rise to shoeleather costs. 
C) less often, giving rise to redistribution costs. 
D) less often, thereby lessening the severity of the inflation tax.

Question 6

If M = 3,000, P = 2, and Y = 12,000, what is velocity?

Accepted Answer

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

Question 7

The supply of money is determined by

Accepted Answer

A) the price level. 
B) the Treasury and Congressional Budget Office. 
C) the Federal Reserve System. 
D) the demand for money. 
A) the price level. 
B) the Treasury and Congressional Budget Office. 
C) the Federal Reserve System. 
D) the demand for money.

Question 8

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A) menu costs and shoeleather costs 
B) Menu costs but not shoeleather costs 
C) shoeleather costs but not menu costs. 
D) menu costs but not shoeleather costs 
A) menu costs and shoeleather costs 
B) Menu costs but not shoeleather costs 
C) shoeleather costs but not menu costs. 
D) menu costs but not shoeleather costs

Question 9

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 10

If M = 5,000, P = 3, and Y = 10,000, what is velocity?

Accepted Answer

A) 6 
B) 1.5 
C) 2/3 
D) 1/6 
A) 6 
B) 1.5 
C) 2/3 
D) 1/6

Question 11

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

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 12

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A) Austria in the 1920's. 
B) Hungary in the 1920's. 
C) Poland in the 1920's. 
D) All of the above are correct. 
A) Austria in the 1920's. 
B) Hungary in the 1920's. 
C) Poland in the 1920's. 
D) All of the above are correct.

Question 13

Suppose the money supply tripled, but at the same time velocity fell by half and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A) is 1.5 times its old value. 
B) is 3 times its old value. 
C) is 6 times its old value. 
D) is the same as its old value. 
A) is 1.5 times its old value. 
B) is 3 times its old value. 
C) is 6 times its old value. 
D) is the same as its old value.

Question 14

The real interest rate is 8 percent and the nominal interest rate is 10.5 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A) deflation; 2.5 percent 
B) deflation; 20.5 percent 
C) inflation; 2.5 percent 
D) inflation; 20.5 percent 
A) deflation; 2.5 percent 
B) deflation; 20.5 percent 
C) inflation; 2.5 percent 
D) inflation; 20.5 percent

Question 15

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A) the inflation tax. 
B) menu costs. 
C) the inflation fallacy. 
D) shoeleather costs. 
A) the inflation tax. 
B) menu costs. 
C) the inflation fallacy. 
D) shoeleather costs.

Question 16

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 17

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 18

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Accepted Answer

A) The $750 is a nominal variable. The 300 cups of coffee is a real variable. 
B) The $750 is a real variable. The 300 cups of coffee is a nominal variable. 
C) Both the $750 and the 300 cups of coffee are nominal variables. 
D) Both the $750 and the 300 cups of coffee are real variables. 
A) The $750 is a nominal variable. The 300 cups of coffee is a real variable. 
B) The $750 is a real variable. The 300 cups of coffee is a nominal variable. 
C) Both the $750 and the 300 cups of coffee are nominal variables. 
D) Both the $750 and the 300 cups of coffee are real variables.

Question 19

There was hyperinflation during the

Accepted Answer

A) period 1880-1896 in the United States. 
B) 1970s in the United States. 
C) early part of the current century in Zimbabwe. 
D) All of the above are correct. 
A) period 1880-1896 in the United States. 
B) 1970s in the United States. 
C) early part of the current century in Zimbabwe. 
D) All of the above are correct.

Question 20

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Accepted Answer

A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected. 
A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected.

Exam 17: Money Growth and Inflation

According to the classical dichotomy, which of the following is influenced by monetary factors?

Which of the following helps to explain why the inflation fallacy is a fallacy?

You put money into 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?

With the value of money on the vertical axis, the money supply curve is

When inflation rises, people tend to go to the bank

If M = 3,000, P = 2, and Y = 12,000, what is velocity?

The supply of money is determined by

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

The quantity theory of money can explain hyperinflations but not moderate inflation.

If M = 5,000, P = 3, and Y = 10,000, what is velocity?

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

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Suppose the money supply tripled, but at the same time velocity fell by half and real GDP was unchanged. According to the quantity equation the price level

The real interest rate is 8 percent and the nominal interest rate is 10.5 percent. Is there inflation or deflation? What is the inflation or deflation rate?

The idea that inflation by itself reduces people's purchasing power is called

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

The inflation rate is measured as the percentage change in a price index.

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

There was hyperinflation during the

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

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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