Exam 30: Money Growth and Inflation

The country of Veridian has a tax system identical to that of the United States.Suppose someone in Veridian bought a parcel of land for 10,000 deera (the local currency)in 1964 when the price index equaled 100.In 2005,the person sold the land for 100,000 deera,and the price index equaled 500.The tax rate on nominal capital gains was 20 percent.Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2005 prices to find the after-tax real rate of capital gain.

The United States has never had deflation.

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

Money demand depends on

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

An assistant manager at a restaurant gets a $100 a month raise.He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

If the quantity of money supplied is greater than the quantity demanded,then prices should fall.

Deflation

If Y and M are constant,and V doubles,the quantity equation implies that the price level

According to the classical dichotomy,when the money supply doubles which of the following doubles?

High and unexpected inflation has a greater cost

In the 1970s,the U.S.inflation rate reached about

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

Shoeleather cost refers to

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Higher inflation makes relative prices

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

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

For a given real interest rate,a decrease in the inflation rate would

The money supply in Muckland is $100 billion.Nominal GDP is $800 billion and real GDP is $400 billion.What are the price level and velocity in Muckland?