Question 1

High and unexpected inflation has a greater cost

Accepted Answer

A) for those who save than for those who borrow. 
B) for those who hold a little money than for those who hold a lot of money. 
C) for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage. 
D) for savers in low income tax brackets than for savers in high income tax brackets. 
A) for those who save than for those who borrow. 
B) for those who hold a little money than for those who hold a lot of money. 
C) for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage. 
D) for savers in low income tax brackets than for savers in high income tax brackets.

Question 2

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Accepted Answer

A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected. 
A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected.

Question 3

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 4

If a country experienced deflation, then

Accepted Answer

A) the nominal interest rate would be greater than the real interest rate. 
B) the real interest rate would be greater than the nominal interest rate. 
C) the real interest rate would equal the nominal interest rate. 
D) None of the above is necessarily correct. 
A) the nominal interest rate would be greater than the real interest rate. 
B) the real interest rate would be greater than the nominal interest rate. 
C) the real interest rate would equal the nominal interest rate. 
D) None of the above is necessarily correct.

Question 5

In order to maintain stable prices, a central bank must

Accepted Answer

A) maintain low interest rates. 
B) keep unemployment low. 
C) tightly control the money supply. 
D) sell indexed bonds. 
A) maintain low interest rates. 
B) keep unemployment low. 
C) tightly control the money supply. 
D) sell indexed bonds.

Question 6

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A) the inflation rate and the nominal interest rate by the same number of percentage points. 
B) nominal interest rates but by less than the percentage point increase in the inflation rate. 
C) the inflation rate but not the nominal interest. 
D) neither the inflation rate nor the nominal interest rate. 
A) the inflation rate and the nominal interest rate by the same number of percentage points. 
B) nominal interest rates but by less than the percentage point increase in the inflation rate. 
C) the inflation rate but not the nominal interest. 
D) neither the inflation rate nor the nominal interest rate.

Question 7

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Accepted Answer

A) Unemployment 
B) Productivity 
C) Inflation 
D) Monetary policy 
A) Unemployment 
B) Productivity 
C) Inflation 
D) Monetary policy

Question 8

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 9

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A) 28.00 percent 
B) 36.25 percent 
C) 43.75 percent 
D) 67.50 percent 
A) 28.00 percent 
B) 36.25 percent 
C) 43.75 percent 
D) 67.50 percent

Question 10

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

Accepted Answer

A) 11.5 percent 
B) 7 percent 
C) 4.5 percent 
D) 2.5 percent 
A) 11.5 percent 
B) 7 percent 
C) 4.5 percent 
D) 2.5 percent

Question 11

Most economists believe that monetary neutrality provides

Accepted Answer

A) a good description of both the long run and the short run. 
B) a good description of neither the long run nor the short run. 
C) a good description of the short run, but not the long run. 
D) a good description of the long run, but not the short run. 
A) a good description of both the long run and the short run. 
B) a good description of neither the long run nor the short run. 
C) a good description of the short run, but not the long run. 
D) a good description of the long run, but not the short run.

Question 12

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess

Accepted Answer

A) supply of money, causing people to spend more. 
B) supply of money, causing people to spend less. 
C) demand for money, causing people to spend more. 
D) demand for money, causing people to spend less. 
A) supply of money, causing people to spend more. 
B) supply of money, causing people to spend less. 
C) demand for money, causing people to spend more. 
D) demand for money, causing people to spend less.

Question 13

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that

Accepted Answer

A) velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P. 
B) velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P. 
C) velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P. 
D) velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P. 
A) velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P. 
B) velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P. 
C) velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P. 
D) velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.

Question 14

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) the value of money. 
B) real interest rates. 
C) nominal interest rates. 
D) the money supply. 
A) the value of money. 
B) real interest rates. 
C) nominal interest rates. 
D) the money supply.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

If inflation is lower than what was expected,

Accepted Answer

A) creditors receive a lower real interest rate than they had anticipated. 
B) creditors pay a lower real interest rate than they had anticipated. 
C) debtors receive a higher real interest rate than they had anticipated. 
D) debtors pay a higher real interest rate than they had anticipated. 
A) creditors receive a lower real interest rate than they had anticipated. 
B) creditors pay a lower real interest rate than they had anticipated. 
C) debtors receive a higher real interest rate than they had anticipated. 
D) debtors pay a higher real interest rate than they had anticipated.

Question 17

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t

Question 18

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

Accepted Answer

A) True 
 B)False

Question 19

The Fisher effect

Accepted Answer

A) says the government can generate revenue by printing money. 
B) says there is a one for one adjustment of the nominal interest rate to the inflation rate. 
C) explains how higher money supply growth leads to higher inflation. 
D) explains how prices adjust to obtain equilibrium in the money market. 
A) says the government can generate revenue by printing money. 
B) says there is a one for one adjustment of the nominal interest rate to the inflation rate. 
C) explains how higher money supply growth leads to higher inflation. 
D) explains how prices adjust to obtain equilibrium in the money market.

Question 20

You put money in the bank. The increase in the dollar value of your savings

Accepted Answer

A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. 
D) is a real variable, but the change in the number of goods you buy with your savings is a nominal variable. 
A) and the change in the number of goods you can buy with your savings are both nominal variables. 
B) and the change in the number of goods you can buy with your savings are both real variables. 
C) is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. 
D) is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

Exam 17: Money Growth and Inflation

High and unexpected inflation has a greater cost

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

The quantity equation is M x V = P x Y.

If a country experienced deflation, then

In order to maintain stable prices, a central bank must

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

If money demand shifts right, the price level falls.

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

Most economists believe that monetary neutrality provides

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that

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

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

If inflation is lower than what was expected,

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

The Fisher effect

You put money in the bank. The increase in the dollar value of your savings

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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