Question 1

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 2

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 3

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Accepted Answer

A) True 
 B)False

Question 4

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Accepted Answer

A) both the nominal and the real interest rate fall. 
B) neither the nominal nor the real interest rate fall. 
C) the nominal interest rate falls, but the real interest rate does not. 
D) the real interest rate falls, but the nominal interest rate does not. 
A) both the nominal and the real interest rate fall. 
B) neither the nominal nor the real interest rate fall. 
C) the nominal interest rate falls, but the real interest rate does not. 
D) the real interest rate falls, but the nominal interest rate does not.

Question 5

The inflation tax

Accepted Answer

A) is an alternative to income taxes and government borrowing. 
B) taxes most those who hold the most money. 
C) is the revenue created when the government prints money. 
D) All of the above are correct. 
A) is an alternative to income taxes and government borrowing. 
B) taxes most those who hold the most money. 
C) is the revenue created when the government prints money. 
D) All of the above are correct.

Question 6

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

Velocity is computed as

Accepted Answer

A) (PY)/M. 
B) (PM)/Y. 
C) (YM)/P. 
D) (YM)/V. 
A) (PY)/M. 
B) (PM)/Y. 
C) (YM)/P. 
D) (YM)/V.

Question 8

If P = 4 and Y = 450, then which of the following pairs of values are possible?

Accepted Answer

A) M = 800, V = 4 
B) M = 600, V =3 
C) M = 400, V =2 
D) M = 200, V =1 
A) M = 800, V = 4 
B) M = 600, V =3 
C) M = 400, V =2 
D) M = 200, V =1

Question 9

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 10

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the following is 2?

Accepted Answer

A) The price level and velocity 
B) the price level but not velocity 
C) the price level and velocity. 
D) neither the price level nor velocity 
A) The price level and velocity 
B) the price level but not velocity 
C) the price level and velocity. 
D) neither the price level nor velocity

Question 11

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) upward, because at higher prices people want to hold more money. 
B) downward, because at higher prices people want to hold more money. 
C) downward, because at higher price people want to hold less money. 
D) upward, because at higher prices people want to hold less money. 
A) upward, because at higher prices people want to hold more money. 
B) downward, because at higher prices people want to hold more money. 
C) downward, because at higher price people want to hold less money. 
D) upward, because at higher prices people want to hold less money.

Question 13

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A) Steve had both the higher before-tax real gain and the higher after-tax real gain. 
B) Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain. 
C) Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain. 
D) Stephanie had both the higher before-tax real gain and the higher after-tax real gain. 
A) Steve had both the higher before-tax real gain and the higher after-tax real gain. 
B) Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain. 
C) Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain. 
D) Stephanie had both the higher before-tax real gain and the higher after-tax real gain.

Question 14

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A) an increase in the value of money 
B) a decrease in the price level 
C) an open-market purchase of bonds by the Federal Reserve 
D) None of the above is correct. 
A) an increase in the value of money 
B) a decrease in the price level 
C) an open-market purchase of bonds by the Federal Reserve 
D) None of the above is correct.

Question 15

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Accepted Answer

A) will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B) will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C) will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D) will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
A) will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B) will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C) will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D) will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.

Question 16

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Accepted Answer

A) $50 
B) $75 
C) $100 
D) $200 
A) $50 
B) $75 
C) $100 
D) $200

Question 17

If the Fed increases the money supply, then 1/P

Accepted Answer

A) falls, so the value of money falls. 
B) falls, so the value of money rises. 
C) rises, so the value of money falls. 
D) rises, so the value of money rises. 
A) falls, so the value of money falls. 
B) falls, so the value of money rises. 
C) rises, so the value of money falls. 
D) rises, so the value of money rises.

Question 18

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A) both a nominal gain and a real gain. 
B) a nominal gain and a real loss. 
C) a nominal loss and a real gain. 
D) both a nominal loss and a real loss. 
A) both a nominal gain and a real gain. 
B) a nominal gain and a real loss. 
C) a nominal loss and a real gain. 
D) both a nominal loss and a real loss.

Question 19

Serena purchased 10 shares of GLC, Inc.stock for $200 per share; one year later she sold the 10 shares for $220 a share. Over the year, the price level increased from 135.0 to 143.1. The tax rate on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Serena pay on her gain?

Accepted Answer

A) $90 
B) $95 
C) $100 
D) None of the above is correct. 
A) $90 
B) $95 
C) $100 
D) None of the above is correct.

Question 20

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

The United States has never had deflation.

The money demand curve shifts to the left when the Fed buys government bonds.

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

The inflation tax

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

Velocity is computed as

If P = 4 and Y = 450, then which of the following pairs of values are possible?

An excess supply of money is eliminated by a falling price level

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 4,000, Which of the following is 2?

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

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

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

If the Fed increases the money supply, then 1/P

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

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. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?