Exam 11: Money Growth and Inflation

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Which of the following does the quantity theory of money try to explain?

Suppose that monetary neutrality holds. Of the following variables, which ones do not change when the money supply increases? a.real interest rates b.inflation c.the price level d.real output e.real wages f. nominal wages

Which of the following terms refers to the cost of changing price tags and price listings?

The money supply in Freedonia is $100 billion. Nominal GDP is $800 billion, and real GDP is $200 billion. What is the price level in Freedonia?

The country of Aquilonia has a tax system identical to that of Canada. Suppose someone in Aquilonia bought a parcel of land for $20 000 in 1960 when the price index equalled 100. In 2002, the person sold the land for $100 000, and the price index equalled 600. If the person must pay 20 percent of any capital gain in taxes, which of the following is the after-tax real capital gain (in 2002 dollars) on the land?

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, what is the real interest rate?

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

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

Which of the following would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

When the number of dollars needed to buy a representative basket of goods falls, what happens to the value of money?

Which of the following best defines the velocity of money?

Which of the following best explains why governments may prefer an inflation tax to some other kind of tax?

When do most economists believe the principle of monetary neutrality is relevant?

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

Define each of the symbols and explain the meaning of M * V = P * Y.

In the 14th century, the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold, which was in use as a medium of exchange. Which of the following would we predict this increase in gold would do to the price level and value of gold in Cairo?

When a graph of the money market is drawn with the value of money on the vertical axis, which of the following will happen if the value of money is below the equilibrium level?

You put money in an account and earn a real interest rate of 10 percent, inflation is 3 percent, and your marginal tax rate is 40 percent. Which of the following is your after-tax real rate of interest?

According to the quantity equation, if Y and V are constant, and M doubles, which of the following will happen to the price level?