Question 1

Over the past 70 years, what was the approximate average annual inflation rate?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 7 percent 
A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 7 percent

Question 2

Which of the following does the shoeleather cost of inflation refer to?

Accepted Answer

A) the fall in real income associated with inflation 
B) the time spent searching for low prices when inflation rises 
C) the waste of resources used to maintain lower money holdings 
D) the increased cost to the government of printing more money 
A) the fall in real income associated with inflation 
B) the time spent searching for low prices when inflation rises 
C) the waste of resources used to maintain lower money holdings 
D) the increased cost to the government of printing more money

Question 3

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level or nominal GDP change?

Accepted Answer

A) The price level will not change. 
B) Nominal GDP will grow by 10 percent. 
C) Nominal GDP will stay the same. 
D) The price level will increase by 10 percent. 
A) The price level will not change. 
B) Nominal GDP will grow by 10 percent. 
C) Nominal GDP will stay the same. 
D) The price level will increase by 10 percent.

Question 4

When the money market is depicted in a graph with the value of money on the vertical axis, what does an increase in the price level cause?

Accepted Answer

A) a shift to the right of the money demand curve 
B) a shift to the left of the money demand curve 
C) a movement to the left along the money demand curve 
D) a movement to the right along the money demand curve 
A) a shift to the right of the money demand curve 
B) a shift to the left of the money demand curve 
C) a movement to the left along the money demand curve 
D) a movement to the right along the money demand curve

Question 5

Which of the following best describes the effects of an open market operation undertaken by the Bank of Canada?

Accepted Answer

A) If the Bank of Canada purchases bonds in the open market, then the money supply shifts right and the price level increases. 
B) If the Bank of Canada sells bonds in the open market, then money supply shifts right and the price level decreases. 
C) If the Bank of Canada purchases bonds, then the money supply shifts left and the price level decreases. 
D) If the Bank of Canada sells bonds, then the money supply shifts right and the price level decreases. 
A) If the Bank of Canada purchases bonds in the open market, then the money supply shifts right and the price level increases. 
B) If the Bank of Canada sells bonds in the open market, then money supply shifts right and the price level decreases. 
C) If the Bank of Canada purchases bonds, then the money supply shifts left and the price level decreases. 
D) If the Bank of Canada sells bonds, then the money supply shifts right and the price level decreases.

Question 6

Under which of the following conditions is wealth distributed from debtors to creditors?

Accepted Answer

A) When inflation is high, but expected. 
B) When inflation is low, but expected. 
C) When inflation is unexpectedly high. 
D) When inflation is unexpectedly low. 
A) When inflation is high, but expected. 
B) When inflation is low, but expected. 
C) When inflation is unexpectedly high. 
D) When inflation is unexpectedly low.

Question 7

If the money supply growth rate permanently increased from 4 percent to 12 percent, which of the following would we expect to happen?

Accepted Answer

A) The inflation rate would increase by 8 percent, and the nominal interest rate would increase by less than 10 percent. 
B) The inflation rate would increase by less than 8 percent, and the nominal interest rate would increase by 8 percent. 
C) Both the inflation rate and the nominal interest rate would increase by 8 percent. 
D) Both the inflation rate and the nominal interest rate would increase by less than 8 percent. 
A) The inflation rate would increase by 8 percent, and the nominal interest rate would increase by less than 10 percent. 
B) The inflation rate would increase by less than 8 percent, and the nominal interest rate would increase by 8 percent. 
C) Both the inflation rate and the nominal interest rate would increase by 8 percent. 
D) Both the inflation rate and the nominal interest rate would increase by less than 8 percent.

Question 8

Inflation induces people to spend more resources maintaining lower money holdings. This is called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 9

Use the figure below for the following questions.
Figure 30-1  
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, how much is the excess demand or supply?

Accepted Answer

A) There is an excess demand equal to the distance between A and C. 
B) There is an excess demand equal to the distance between A and B. 
C) There is an excess supply equal to the distance between A and C. 
D) There is an excess supply equal to the distance between A and B. 
A) There is an excess demand equal to the distance between A and C. 
B) There is an excess demand equal to the distance between A and B. 
C) There is an excess supply equal to the distance between A and C. 
D) There is an excess supply equal to the distance between A and B.

Question 10

Suppose that the Government of Canada 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 richer. 
B) Prices would fall. 
C) People who lent money at a fixed interest rate would feel richer. 
D) People who borrowed money at a fixed interest rate would feel richer. 
A) People who held money would feel richer. 
B) Prices would fall. 
C) People who lent money at a fixed interest rate would feel richer. 
D) People who borrowed money at a fixed interest rate would feel richer.

Question 11

According to the classical dichotomy, when the money supply doubles, which of the following also double(s)?

Accepted Answer

A) the price level and nominal GDP 
B) the price level and real GDP 
C) only real GDP 
D) only the price level 
A) the price level and nominal GDP 
B) the price level and real GDP 
C) only real GDP 
D) only the price level

Question 12

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

Accepted Answer

A) the price level 
B) real GDP 
C) nominal interest rates 
D) nominal GDP 
A) the price level 
B) real GDP 
C) nominal interest rates 
D) nominal GDP

Question 13

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Accepted Answer

A) Debtors and creditors would both have reduced real wealth. 
B) Debtors and creditors would both have increased real wealth. 
C) Debtors would gain at the expense of creditors. 
D) Creditors would gain at the expense of debtors. 
A) Debtors and creditors would both have reduced real wealth. 
B) Debtors and creditors would both have increased real wealth. 
C) Debtors would gain at the expense of creditors. 
D) Creditors would gain at the expense of debtors.

Question 14

Which of the following best describes the evolution of inflation in Canada?

Accepted Answer

A) It has been relatively constant over the past 70 years. 
B) The inflation rate was constant at 7 percent annually for most of the twentieth century. 
C) During 1990s, prices rose at an average rate of about 2 percent per year. 
D) There was deflation during the 1990s. 
A) It has been relatively constant over the past 70 years. 
B) The inflation rate was constant at 7 percent annually for most of the twentieth century. 
C) During 1990s, prices rose at an average rate of about 2 percent per year. 
D) There was deflation during the 1990s.

Question 15

When the money market is drawn with the value of money on the vertical axis, in which of the following situations does the price level increase?

Accepted Answer

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

Question 16

Suppose Bob considers borrowing $100 from Sheila at a 10 percent interest rate. They both think that a 4 percent real interest rate would be fair.
a.What was the inflation rate they both expected?
b.If the inflation rate turned out to be 8 percent, how much was the real interest rate? Who gained and who lost from this transaction, and how much because of unexpected inflation?
c.If there was a capital gain tax of 30 percent, what is the after-tax real interest rate, with the inflation rate of 8 percent?

Accepted Answer

a.Let i be the nominal interest rate, r

Question 17

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Accepted Answer

A) the velocity concept 
B) the Fisher effect 
C) the classical dichotomy 
D) the classical theory of money 
A) the velocity concept 
B) the Fisher effect 
C) the classical dichotomy 
D) the classical theory of money

Question 18

Which of the following does the Fisher effect imply?

Accepted Answer

A) The nominal interest rate adjusts one for one with the inflation rate. 
B) The growth rate of the money supply determines the inflation rate. 
C) Real variables are heavily influenced by the monetary system. 
D) The real interest rate adjusts one for one with the inflation rate. 
A) The nominal interest rate adjusts one for one with the inflation rate. 
B) The growth rate of the money supply determines the inflation rate. 
C) Real variables are heavily influenced by the monetary system. 
D) The real interest rate adjusts one for one with the inflation rate.

Question 19

Which of the following does an increase in the money supply growth rate increase?

Accepted Answer

A) inflation, nominal interest rates, and real interest rates 
B) inflation and nominal interest rates, but it does not change real interest rates 
C) inflation and real interest rates, but it does not change nominal interest rates 
D) nominal and real interest rates, but it does not change inflation 
A) inflation, nominal interest rates, and real interest rates 
B) inflation and nominal interest rates, but it does not change real interest rates 
C) inflation and real interest rates, but it does not change nominal interest rates 
D) nominal and real interest rates, but it does not change inflation

Question 20

Velocity in the country of Aquilonia is always stable. In 2009, the money supply was $100 billion, nominal GDP was $500 billion, and the real interest rate was 3 percent. In 2010, the money supply was $105 billion, and real GDP did not change from its level in 2009. What was the approximate nominal interest rate in 2010?

Accepted Answer

A) 3 percent 
B) 5 percent 
C) 8 percent 
D) 11 percent 
A) 3 percent 
B) 5 percent 
C) 8 percent 
D) 11 percent

Over the past 70 years, what was the approximate average annual inflation rate?

Which of the following does the shoeleather cost of inflation refer to?

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level or nominal GDP change?

When the money market is depicted in a graph with the value of money on the vertical axis, what does an increase in the price level cause?

Which of the following best describes the effects of an open market operation undertaken by the Bank of Canada?

Under which of the following conditions is wealth distributed from debtors to creditors?

If the money supply growth rate permanently increased from 4 percent to 12 percent, which of the following would we expect to happen?

Inflation induces people to spend more resources maintaining lower money holdings. This is called shoeleather costs.

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 2, how much is the excess demand or supply?

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

According to the classical dichotomy, when the money supply doubles, which of the following also double(s)?

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

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Which of the following best describes the evolution of inflation in Canada?

When the money market is drawn with the value of money on the vertical axis, in which of the following situations does the price level increase?

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Which of the following does the Fisher effect imply?

Which of the following does an increase in the money supply growth rate increase?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Exam 11: Money Growth and Inflation

Over the past 70 years, what was the approximate average annual inflation rate?

Which of the following does the shoeleather cost of inflation refer to?

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level or nominal GDP change?

When the money market is depicted in a graph with the value of money on the vertical axis, what does an increase in the price level cause?

Which of the following best describes the effects of an open market operation undertaken by the Bank of Canada?

Under which of the following conditions is wealth distributed from debtors to creditors?

If the money supply growth rate permanently increased from 4 percent to 12 percent, which of the following would we expect to happen?

Inflation induces people to spend more resources maintaining lower money holdings. This is called shoeleather costs.

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, how much is the excess demand or supply?

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

According to the classical dichotomy, when the money supply doubles, which of the following also double(s)?

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

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Which of the following best describes the evolution of inflation in Canada?

When the money market is drawn with the value of money on the vertical axis, in which of the following situations does the price level increase?

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?

Which of the following does the Fisher effect imply?

Which of the following does an increase in the money supply growth rate increase?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 2, how much is the excess demand or supply?