Question 1

The inflation tax refers to

Accepted Answer

A) the revenue a government creates by printing money. 
B) higher inflation which requires more frequent price changes. 
C) the idea that, other things the same, an increase in the tax rate raises the inflation rate. 
D) taxes being indexed for inflation. 
A) the revenue a government creates by printing money. 
B) higher inflation which requires more frequent price changes. 
C) the idea that, other things the same, an increase in the tax rate raises the inflation rate. 
D) taxes being indexed for inflation.

Question 2

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

Accepted Answer

A) upward sloping because people supply a larger quantity of money when the value of money increases. 
B) downward sloping because people supply a larger quantity of money when the value of money decreases. 
C) horizontal because we assume the central bank controls the money supply 
D) vertical because we assume the central bank controls the money supply. 
A) upward sloping because people supply a larger quantity of money when the value of money increases. 
B) downward sloping because people supply a larger quantity of money when the value of money decreases. 
C) horizontal because we assume the central bank controls the money supply 
D) vertical because we assume the central bank controls the money supply.

Question 3

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 4

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Accepted Answer

A) the money supply must have increased, perhaps because the Fed bought bonds. 
B) the money supply must have increased, perhaps because the Fed sold bonds. 
C) the money supply must have decreased, perhaps because the Fed bought bonds. 
D) the money supply must have decreased, perhaps because the Fed sold bonds. 
A) the money supply must have increased, perhaps because the Fed bought bonds. 
B) the money supply must have increased, perhaps because the Fed sold bonds. 
C) the money supply must have decreased, perhaps because the Fed bought bonds. 
D) the money supply must have decreased, perhaps because the Fed sold bonds.

Question 5

You bought some shares of stock and, over the next year, the price per share increased by 5 percent and the price level increased by 8 percent. Before taxes, you experienced

Accepted Answer

A) both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B) both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C) a nominal gain and a real loss, and you paid taxes on the nominal gain. 
D) a nominal gain and a real loss, and you paid no taxes on the transaction. 
A) both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B) both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C) a nominal gain and a real loss, and you paid taxes on the nominal gain. 
D) a nominal gain and a real loss, and you paid no taxes on the transaction.

Question 6

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 7

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Accepted Answer

A) shifts rightward, causing the value of money measured in terms of goods and services to rise. 
B) shifts rightward, causing the value of money measured in terms of goods and services to fall. 
C) shifts leftward, causing the value of money measured in terms of goods and services to rise. 
D) shifts leftward, causing the value of money measured in terms of goods and services to fall. 
A) shifts rightward, causing the value of money measured in terms of goods and services to rise. 
B) shifts rightward, causing the value of money measured in terms of goods and services to fall. 
C) shifts leftward, causing the value of money measured in terms of goods and services to rise. 
D) shifts leftward, causing the value of money measured in terms of goods and services to fall.

Question 8

If velocity = 5, the price level = 1.5, and the real value of output is 2,500, then the quantity of money is

Accepted Answer

A) 333.33. 
B) 750.00. 
C) 1,050.00. 
D) 8,333.33. 
A) 333.33. 
B) 750.00. 
C) 1,050.00. 
D) 8,333.33.

Question 9

Over the past 70 years, prices in the U.S. have risen on average about

Accepted Answer

A) 2 percent per year. 
B) 4 percent per year. 
C) 6 percent per year. 
D) 8 percent per year. 
A) 2 percent per year. 
B) 4 percent per year. 
C) 6 percent per year. 
D) 8 percent per year.

Question 10

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A) 0.5 and the equilibrium price level is 2. 
B) 2 and the equilibrium price level is 0.5. 
C) 0.5 and the equilibrium price level cannot be determined from the graph. 
D) 2 and the equilibrium price level cannot be determined from the graph. 
A) 0.5 and the equilibrium price level is 2. 
B) 2 and the equilibrium price level is 0.5. 
C) 0.5 and the equilibrium price level cannot be determined from the graph. 
D) 2 and the equilibrium price level cannot be determined from the graph.

Question 11

When inflation rises, firms make

Accepted Answer

A) more frequent price changes. This raises their menu costs. 
B) more frequent price changes. This reduces their menu costs. 
C) less frequent price changes. This raises their menu costs. 
D) less frequent price changes. This reduces their menu costs. 
A) more frequent price changes. This raises their menu costs. 
B) more frequent price changes. This reduces their menu costs. 
C) less frequent price changes. This raises their menu costs. 
D) less frequent price changes. This reduces their menu costs.

Question 12

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A) increase real GDP and the price level. 
B) increase real GDP, but not the price level. 
C) increase the price level, but not real GDP. 
D) increase neither the price level nor real GDP. 
A) increase real GDP and the price level. 
B) increase real GDP, but not the price level. 
C) increase the price level, but not real GDP. 
D) increase neither the price level nor real GDP.

Question 13

The value of money rises as the price level

Accepted Answer

A) rises, because the number of dollars needed to buy a representative basket of goods rises. 
B) rises, because the number of dollars needed to buy a representative basket of goods falls. 
C) falls, because the number of dollars needed to buy a representative basket of goods rises. 
D) falls, because the number of dollars needed to buy a representative basket of goods falls. 
A) rises, because the number of dollars needed to buy a representative basket of goods rises. 
B) rises, because the number of dollars needed to buy a representative basket of goods falls. 
C) falls, because the number of dollars needed to buy a representative basket of goods rises. 
D) falls, because the number of dollars needed to buy a representative basket of goods falls.

Question 14

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A) high, whether it is expected or not. 
B) low, whether it is expected or not. 
C) unexpectedly high. 
D) unexpectedly low. 
A) high, whether it is expected or not. 
B) low, whether it is expected or not. 
C) unexpectedly high. 
D) unexpectedly low.

Question 15

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

Accepted Answer

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

Question 16

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Accepted Answer

A) the supply of money decreases and the value of money rises. 
B) the supply of money increases and the value of money falls. 
C) the demand for money increases and the value of money rises. 
D) the demand for money decreases and the value of money falls. 
A) the supply of money decreases and the value of money rises. 
B) the supply of money increases and the value of money falls. 
C) the demand for money increases and the value of money rises. 
D) the demand for money decreases and the value of money falls.

Question 17

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

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 the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Accepted Answer

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

Question 20

The money supply curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

The inflation tax refers to

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

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

You bought some shares of stock and, over the next year, the price per share increased by 5 percent and the price level increased by 8 percent. Before taxes, you experienced

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

If velocity = 5, the price level = 1.5, and the real value of output is 2,500, then the quantity of money is

Over the past 70 years, prices in the U.S. have risen on average about

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

When inflation rises, firms make

The principle of monetary neutrality implies that an increase in the money supply will

The value of money rises as the price level

Wealth is redistributed from creditors to debtors when inflation is

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

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

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

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

The money supply curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

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

Filters

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. If the relevant money-demand curve is the one labeled MD₁, then the equilibrium value of money is