Question 1

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A) high and it turns out to be high. 
B) low and it turns out to be low. 
C) low and it turns out to be high. 
D) high and it turns out to be low. 
A) high and it turns out to be high. 
B) low and it turns out to be low. 
C) low and it turns out to be high. 
D) high and it turns out to be low.

Question 2

Over the last 70 years, the average annual U.S. inflation rate was about

Accepted Answer

A) 2 percent, implying that prices have increased 10-fold. 
B) 4 percent, implying that prices have increased 10-fold. 
C) 2 percent, implying that prices have increased 16-fold. 
D) 4 percent, implying that prices increased about 16-fold. 
A) 2 percent, implying that prices have increased 10-fold. 
B) 4 percent, implying that prices have increased 10-fold. 
C) 2 percent, implying that prices have increased 16-fold. 
D) 4 percent, implying that prices increased about 16-fold.

Question 3

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

Accepted Answer

A) 10 percent 
B) 7 percent 
C) 3 percent 
D) 2.5 percent 
A) 10 percent 
B) 7 percent 
C) 3 percent 
D) 2.5 percent

Question 4

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A) Inflation is 2.5 percent; the tax rate is 25 percent. 
B) Inflation is 3 percent; the tax rate is 20 percent. 
C) Inflation is 2 percent; the tax rate is 30 percent. 
D) The after-tax real interest rate is the same for all of the above. 
A) Inflation is 2.5 percent; the tax rate is 25 percent. 
B) Inflation is 3 percent; the tax rate is 20 percent. 
C) Inflation is 2 percent; the tax rate is 30 percent. 
D) The after-tax real interest rate is the same for all of the above.

Question 5

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 6

In the U.S., from the early 1980s through the early 1990s,

Accepted Answer

A) both inflation and nominal interest rates rose. 
B) both inflation and nominal interest rates fell. 
C) the inflation rate fell and the nominal interest rate rose. 
D) the inflation rate rose and the nominal interest rate fell. 
A) both inflation and nominal interest rates rose. 
B) both inflation and nominal interest rates fell. 
C) the inflation rate fell and the nominal interest rate rose. 
D) the inflation rate rose and the nominal interest rate fell.

Question 7

In the U.S., taxes on capital gains are computed using

Accepted Answer

A) nominal gains. This is one way by which higher inflation discourages saving. 
B) nominal gains. This is one way by which higher inflation encourages saving. 
C) real gains. This is one way by which higher inflation discourages saving. 
D) real gains. This is one way by which higher inflation encourages saving. 
A) nominal gains. This is one way by which higher inflation discourages saving. 
B) nominal gains. This is one way by which higher inflation encourages saving. 
C) real gains. This is one way by which higher inflation discourages saving. 
D) real gains. This is one way by which higher inflation encourages saving.

Question 8

The Fisher effect is crucial for understanding changes over time in

Accepted Answer

A) the nominal interest rate. 
B) the real interest rate. 
C) the inflation rate. 
D) the unemployment rate. 
A) the nominal interest rate. 
B) the real interest rate. 
C) the inflation rate. 
D) the unemployment rate.

Question 9

In the 1970s, the U.S. inflation rate reached about

Accepted Answer

A) 7 percent per year. 
B) 10 percent per year. 
C) 14 percent per year. 
D) 20 percent per year. 
A) 7 percent per year. 
B) 10 percent per year. 
C) 14 percent per year. 
D) 20 percent per year.

Question 10

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

Accepted Answer

A) $0.90. 
B) $1.00. 
C) $1.11. 
D) $1.33. 
A) $0.90. 
B) $1.00. 
C) $1.11. 
D) $1.33.

Question 11

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

Accepted Answer

A) 10 percent 
B) 7 percent 
C) 3 percent 
D) 2.5 percent 
A) 10 percent 
B) 7 percent 
C) 3 percent 
D) 2.5 percent

Question 12

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

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

Question 13

The inflation tax falls mostly heavily on

Accepted Answer

A) those who hold a lot of currency and accounts for a large share of U.S. government revenue. 
B) those who hold a lot of currency but accounts for a small share of U.S. government revenue. 
C) those who hold little currency and accounts for a large share of U.S. government revenue. 
D) those who hold little currency but accounts for a small share of U.S. government revenue. 
A) those who hold a lot of currency and accounts for a large share of U.S. government revenue. 
B) those who hold a lot of currency but accounts for a small share of U.S. government revenue. 
C) those who hold little currency and accounts for a large share of U.S. government revenue. 
D) those who hold little currency but accounts for a small share of U.S. government revenue.

Question 14

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A) The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B) The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C) The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D) The nominal interest rate was 6 percent and the inflation rate was 7.5 percent. 
A) The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B) The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C) The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D) The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.

Question 15

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Accepted Answer

A) The country has high money supply growth. 
B) Inflation is acting like a tax on everyone who holds money. 
C) The government is printing money to finance its expenditures. 
D) All of the above are correct. 
A) The country has high money supply growth. 
B) Inflation is acting like a tax on everyone who holds money. 
C) The government is printing money to finance its expenditures. 
D) All of the above are correct.

Question 16

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A) the nominal wage divided by the price level 
B) real output 
C) real interest rates 
D) None of the above is correct. 
A) the nominal wage divided by the price level 
B) real output 
C) real interest rates 
D) None of the above is correct.

Question 17

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

Accepted Answer

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

Question 18

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. 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, but no real gain, and you paid taxes on the nominal gain. 
D) a nominal gain, but no real gain, 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, but no real gain, and you paid taxes on the nominal gain. 
D) a nominal gain, but no real gain, and you paid no taxes on the transaction.

Question 19

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Accepted Answer

A) the price level grew at about the same rate as the money supply. 
B) the price level grew at a much faster rate than the money supply. 
C) the price level grew at a much slower rate than the money supply. 
D) the inflation rate and the money supply growth rate do not appear to be related. 
A) the price level grew at about the same rate as the money supply. 
B) the price level grew at a much faster rate than the money supply. 
C) the price level grew at a much slower rate than the money supply. 
D) the inflation rate and the money supply growth rate do not appear to be related.

Question 20

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Accepted Answer

A) both higher inflation and higher nominal interest rates. 
B) a higher inflation rate, but not higher nominal interest rates. 
C) a higher nominal interest rate, but not higher inflation. 
D) neither a higher inflation rate nor a higher nominal interest rate. 
A) both higher inflation and higher nominal interest rates. 
B) a higher inflation rate, but not higher nominal interest rates. 
C) a higher nominal interest rate, but not higher inflation. 
D) neither a higher inflation rate nor a higher nominal interest rate.

Exam 17: Money Growth and Inflation

Wealth is redistributed from creditors to debtors when inflation was expected to be

Over the last 70 years, the average annual U.S. inflation rate was about

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

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

In the U.S., from the early 1980s through the early 1990s,

In the U.S., taxes on capital gains are computed using

The Fisher effect is crucial for understanding changes over time in

In the 1970s, the U.S. inflation rate reached about

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

According to the classical dichotomy, which of the following is not influenced by monetary factors?

The inflation tax falls mostly heavily on

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Which of the following can a country increase in the long run by increasing its money growth rate?

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

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

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

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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