Question 1

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A) menu costs 
B) inflation tax 
C) shoeleather costs 
D) All of the above are correct. 
A) menu costs 
B) inflation tax 
C) shoeleather costs 
D) All of the above are correct.

Question 2

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 3

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Accepted Answer

A) Her real and nominal salary have risen. 
B) Her real and nominal salary have fallen. 
C) Her real salary has risen and her nominal salary has fallen. 
D) Her real salary has fallen and her nominal salary has risen. 
A) Her real and nominal salary have risen. 
B) Her real and nominal salary have fallen. 
C) Her real salary has risen and her nominal salary has fallen. 
D) Her real salary has fallen and her nominal salary has risen.

Question 4

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A) increases the real interest rate and the after-tax real rate of interest. 
B) Increases the real interest rate and the after-tax real rate of interest 
C) does not change the real interest rate but raises the after tax real rate of interest. 
D) does not change the real interest rate but reduces the after-tax real rate of interest. 
A) increases the real interest rate and the after-tax real rate of interest. 
B) Increases the real interest rate and the after-tax real rate of interest 
C) does not change the real interest rate but raises the after tax real rate of interest. 
D) does not change the real interest rate but reduces the after-tax real rate of interest.

Question 5

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 6

When the money market is drawn with the value of money on the vertical axis, the value of money increases if

Accepted Answer

A) either money demand or money supply shifts right. 
B) either money demand or money supply shifts left. 
C) money demand shifts right or money supply shifts left. 
D) money demand shifts left or money supply shifts right. 
A) either money demand or money supply shifts right. 
B) either money demand or money supply shifts left. 
C) money demand shifts right or money supply shifts left. 
D) money demand shifts left or money supply shifts right.

Question 7

Which of the following is accurate?

Accepted Answer

A) Monetary policy is neutral in both the short run and the long run. 
B) Though monetary policy is neutral in the long run, it may have effects on real variables in the short run. 
C) Monetary policy has profound effects on real variables in both the short run and the long run. 
D) Monetary policy has profound effects on real variables in the long run, but is neutral in the short run. 
A) Monetary policy is neutral in both the short run and the long run. 
B) Though monetary policy is neutral in the long run, it may have effects on real variables in the short run. 
C) Monetary policy has profound effects on real variables in both the short run and the long run. 
D) Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.

Question 8

When the money market is drawn with the value of money on the vertical axis,

Accepted Answer

A) money demand slopes upward and money supply is horizontal. 
B) money demand slopes downward and money supply is horizontal. 
C) money demand slopes upward and money supply is vertical. 
D) money demand slopes downward and money supply is vertical. 
A) money demand slopes upward and money supply is horizontal. 
B) money demand slopes downward and money supply is horizontal. 
C) money demand slopes upward and money supply is vertical. 
D) money demand slopes downward and money supply is vertical.

Question 9

A decrease in the money supply creates an excess

Accepted Answer

A) supply of money that is eliminated by rising prices. 
B) supply of money that is eliminated by falling prices. 
C) demand for money that is eliminated by rising prices. 
D) demand for money that is eliminated by falling prices. 
A) supply of money that is eliminated by rising prices. 
B) supply of money that is eliminated by falling prices. 
C) demand for money that is eliminated by rising prices. 
D) demand for money that is eliminated by falling prices.

Question 10

Figure 17-1  
-Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then there is an excess

Accepted Answer

A) demand for money that is represented by the distance between points A and C. 
B) demand for money that is represented by the distance between points A and B. 
C) supply of money that is represented by the distance between points A and C. 
D) supply of money that is represented by the distance between points A and B. 
A) demand for money that is represented by the distance between points A and C. 
B) demand for money that is represented by the distance between points A and B. 
C) supply of money that is represented by the distance between points A and C. 
D) supply of money that is represented by the distance between points A and B.

Question 11

The value of money falls 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 12

Shawn puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods.

Accepted Answer

A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) None of the above is correct. 
A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) None of the above is correct.

Question 13

In which of the following cases was the inflation rate 10 percent over the last year?

Accepted Answer

A) One year ago the price index had a value of 110 and now it has a value of 120. 
B) One year ago the price index had a value of 120 and now it has a value of 132. 
C) One year ago the price index had a value of 126 and now it has a value of 140. 
D) One year ago the price index had a value of 145 and now it has a value of 163. 
A) One year ago the price index had a value of 110 and now it has a value of 120. 
B) One year ago the price index had a value of 120 and now it has a value of 132. 
C) One year ago the price index had a value of 126 and now it has a value of 140. 
D) One year ago the price index had a value of 145 and now it has a value of 163.

Question 14

Economists agree that

Accepted Answer

A) neither high inflation nor moderate inflation is very costly. 
B) both high and moderate inflation are quite costly. 
C) high inflation is costly, but they disagree about the costs of moderate inflation. 
D) moderate inflation is as costly as high inflation. 
A) neither high inflation nor moderate inflation is very costly. 
B) both high and moderate inflation are quite costly. 
C) high inflation is costly, but they disagree about the costs of moderate inflation. 
D) moderate inflation is as costly as high inflation.

Question 15

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Accepted Answer

A) The nominal interest rate was 8 percent and the inflation rate was 6 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 4 percent. 
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D) None of the above is correct. 
A) The nominal interest rate was 8 percent and the inflation rate was 6 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 4 percent. 
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D) None of the above is correct.

Question 16

Which of the following is correct?

Accepted Answer

A) The Continental Congress used the inflation tax to help finance the American Revolution. 
B) The inflation is today a principal source of revenue for the U.S. government. 
C) There is no way a person can avoid the inflation tax. 
D) None of the above is correct. 
A) The Continental Congress used the inflation tax to help finance the American Revolution. 
B) The inflation is today a principal source of revenue for the U.S. government. 
C) There is no way a person can avoid the inflation tax. 
D) None of the above is correct.

Question 17

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while hus money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Accepted Answer

A) 3.5 percent and a real interest rate of 5 percent. 
B) 3.5 percent and a real interest rate of 2 percent. 
C) 5 percent and a real interest rate of 3.5 percent 
D) 5 percent and a real interest rate of 2 percent 
A) 3.5 percent and a real interest rate of 5 percent. 
B) 3.5 percent and a real interest rate of 2 percent. 
C) 5 percent and a real interest rate of 3.5 percent 
D) 5 percent and a real interest rate of 2 percent

Question 18

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a.the Fed increases the money supply.
b.people decide to demand less money at each value of money.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& a.The Fed increases the money supply.

Question 19

Which movie is an allegory about late 19th century monetary policy?

Accepted Answer

A) The Wizard of Oz 
B) Mary Poppins 
C) It's a Wonderful Life 
D) Trading Places 
A) The Wizard of Oz 
B) Mary Poppins 
C) It's a Wonderful Life 
D) Trading Places

Question 20

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A) excess demand for money, so the price level will rise. 
B) excess demand for money, so the price level will fall. 
C) excess supply of money, so the price level will rise. 
D) excess supply of money, so the price level will fall. 
A) excess demand for money, so the price level will rise. 
B) excess demand for money, so the price level will fall. 
C) excess supply of money, so the price level will rise. 
D) excess supply of money, so the price level will fall.

Exam 17: Money Growth and Inflation

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Nominal GDP measures output of final goods and services in physical terms.

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

When the money market is drawn with the value of money on the vertical axis, the value of money increases if

Which of the following is accurate?

When the money market is drawn with the value of money on the vertical axis,

A decrease in the money supply creates an excess

Figure 17-1 -Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then there is an excess

The value of money falls as the price level

Shawn puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods.

In which of the following cases was the inflation rate 10 percent over the last year?

Economists agree that

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Which of the following is correct?

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while hus money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a.the Fed increases the money supply. b.people decide to demand less money at each value of money.

Which movie is an allegory about late 19th century monetary policy?

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

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 17-1 -Refer to Figure 17-1. If the money supply is MS₂ and the value of money is 2, then there is an excess