Question 1

If the CPI 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 2

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A) rises, because one unit of currency buys more ice cream cones. 
B) rises, because one unit of currency buys fewer ice cream cones. 
C) falls, because one unit of currency buys more ice cream cones. 
D) falls, because one unit of currency buys fewer ice cream cones. 
A) rises, because one unit of currency buys more ice cream cones. 
B) rises, because one unit of currency buys fewer ice cream cones. 
C) falls, because one unit of currency buys more ice cream cones. 
D) falls, because one unit of currency buys fewer ice cream cones.

Question 3

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A) nominal interest rates. 
B) real interest rates. 
C) the price level. 
D) the money supply. 
A) nominal interest rates. 
B) real interest rates. 
C) the price level. 
D) the money supply.

Question 4

The velocity of money is

Accepted Answer

A) the rate at which the Fed puts money into the economy. 
B) the same thing as the long-term growth rate of the money supply. 
C) the money supply divided by nominal GDP. 
D) the average number of times per year a dollar is spent. 
A) the rate at which the Fed puts money into the economy. 
B) the same thing as the long-term growth rate of the money supply. 
C) the money supply divided by nominal GDP. 
D) the average number of times per year a dollar is spent.

Question 5

Velocity is

Accepted Answer

A) Y/(M x P) and increases if dollars are exchanged less frequently. 
B) Y/(M x P) and increases if dollars are exchanged more frequently. 
C) (P x Y)/M and increases if dollars are exchanged less frequently. 
D) (P x Y)/M and increases if dollars are exchanged more frequently. 
A) Y/(M x P) and increases if dollars are exchanged less frequently. 
B) Y/(M x P) and increases if dollars are exchanged more frequently. 
C) (P x Y)/M and increases if dollars are exchanged less frequently. 
D) (P x Y)/M and increases if dollars are exchanged more frequently.

Question 6

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A) People who held money would feel poorer. 
B) Prices would rise. 
C) People who had lent money at a fixed interest rate would feel poorer. 
D) All of the above are correct. 
A) People who held money would feel poorer. 
B) Prices would rise. 
C) People who had lent money at a fixed interest rate would feel poorer. 
D) All of the above are correct.

Question 7

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) 0.75 times its old value 
A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) 0.75 times its old value

Question 8

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 right, causing the price level to rise. 
B) shifts right, causing the price level to fall. 
C) shifts left, causing the price level to rise. 
D) shifts left, causing the price level to fall. 
A) shifts right, causing the price level to rise. 
B) shifts right, causing the price level to fall. 
C) shifts left, causing the price level to rise. 
D) shifts left, causing the price level to fall.

Question 9

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th

Question 10

The price level is determined by the supply of, and demand for, money.

Accepted Answer

A) True 
 B)False

Question 11

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 40 percent. What is your after-tax real rate of interest?

Accepted Answer

A) 1 percent 
B) 1.8 percent 
C) 2.2 percent 
D) 4.2 percent 
A) 1 percent 
B) 1.8 percent 
C) 2.2 percent 
D) 4.2 percent

Question 12

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Accepted Answer

A) a real interest rate of 2.5 percent and an inflation rate of 2 percent 
B) a real interest rate of 4 percent and an inflation rate of 11 percent 
C) a real interest rate of 6 percent and an inflation rate of 1 percent 
D) a real interest rate of 5.5 percent and an inflation rate of 3 percent 
A) a real interest rate of 2.5 percent and an inflation rate of 2 percent 
B) a real interest rate of 4 percent and an inflation rate of 11 percent 
C) a real interest rate of 6 percent and an inflation rate of 1 percent 
D) a real interest rate of 5.5 percent and an inflation rate of 3 percent

Question 13

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) nominal GDP and nominal interest rates 
B) real wages and real GDP 
C) the price level and nominal GDP 
D) None of the above is correct. 
A) nominal GDP and nominal interest rates 
B) real wages and real GDP 
C) the price level and nominal GDP 
D) None of the above is correct.

Question 15

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 16

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Accepted Answer

A) 60 percent. 
B) 80 percent. 
C) 220 percent. 
D) 24,000 percent. 
A) 60 percent. 
B) 80 percent. 
C) 220 percent. 
D) 24,000 percent.

Question 17

U.S. prices rose at an average annual rate of about 4 percent over the last 70 years.

Accepted Answer

A) True 
 B)False

Question 18

In the U.S., people are required to pay taxes on

Accepted Answer

A) nominal interest earnings, irrespective of their real interest earnings. 
B) real interest earnings, irrespective of their nominal interest earnings. 
C) real capital gains, irrespective of their nominal capital gains. 
D) All of the above are correct. 
A) nominal interest earnings, irrespective of their real interest earnings. 
B) real interest earnings, irrespective of their nominal interest earnings. 
C) real capital gains, irrespective of their nominal capital gains. 
D) All of the above are correct.

Question 19

Other things the same, a decrease in velocity means that

Accepted Answer

A) the rate at which money changes hands falls, so the price level rises. 
B) the rate at which money changes hands falls, so the price level falls. 
C) the rate at which money changes hands rises, so the price level rises. 
D) the rate at which money changes hands rises, so the price level falls. 
A) the rate at which money changes hands falls, so the price level rises. 
B) the rate at which money changes hands falls, so the price level falls. 
C) the rate at which money changes hands rises, so the price level rises. 
D) the rate at which money changes hands rises, so the price level falls.

Question 20

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

If the CPI rises, the number of dollars needed to buy a representative basket of goods

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

The velocity of money is

Velocity is

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

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

List and define any two of the costs of high inflation.

The price level is determined by the supply of, and demand for, money.

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 40 percent. What is your after-tax real rate of interest?

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

The source of all four classic hyperinflations was high rates of money growth.

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

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

U.S. prices rose at an average annual rate of about 4 percent over the last 70 years.

In the U.S., people are required to pay taxes on

Other things the same, a decrease in velocity means that

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

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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