Question 1

The inflation tax falls mostly heavily on

Accepted Answer

A)  those who hold a lot of currency and accounts for a large share of U.S.government revenue. 
B)  those who hold a lot of currency but accounts for a small share of U.S.government revenue. 
C)  those who hold little currency and accounts for a large share of U.S.government revenue. 
D)  those who hold little currency but accounts for a small share of U.S.government revenue. 
A)  those who hold a lot of currency and accounts for a large share of U.S.government revenue. 
B)  those who hold a lot of currency but accounts for a small share of U.S.government revenue. 
C)  those who hold little currency and accounts for a large share of U.S.government revenue. 
D)  those who hold little currency but accounts for a small share of U.S.government revenue.

Question 2

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 3

Given a nominal interest rate of 6 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 2.5 percent;the tax rate is 25 percent. 
B)  Inflation is 3 percent;the tax rate is 20 percent. 
C)  Inflation is 2 percent;the tax rate is 30 percent. 
D)  The after-tax real interest rate is the same for all of the above. 
A)  Inflation is 2.5 percent;the tax rate is 25 percent. 
B)  Inflation is 3 percent;the tax rate is 20 percent. 
C)  Inflation is 2 percent;the tax rate is 30 percent. 
D)  The after-tax real interest rate is the same for all of the above.

Question 4

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases,there is

Question 5

The country of Lessidinia has a tax system identical to that of the United States.Suppose someone in Lessidinia bought a parcel of land for 20,000 foci (the local currency)in 1960 when the price index equaled 100.In 2002,the person sold the land for 100,000 foci,and the price index equaled 600.The tax rate on nominal gains was 20 percent.Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)  -60 percent 
B)  -30 percent 
C)  30 percent 
D)  60 percent 
A)  -60 percent 
B)  -30 percent 
C)  30 percent 
D)  60 percent

Question 6

When inflation rises,people tend to go to the bank

Accepted Answer

A)  more often,giving rise to menu costs. 
B)  more often,giving rise to shoeleather costs. 
C)  less often,giving rise to redistribution costs. 
D)  less often,thereby lessening the severity of the inflation tax. 
A)  more often,giving rise to menu costs. 
B)  more often,giving rise to shoeleather costs. 
C)  less often,giving rise to redistribution costs. 
D)  less often,thereby lessening the severity of the inflation tax.

Question 7

Interest rates adjusted for the effects of inflation

Accepted Answer

A)  and inflation are nominal variables. 
B)  and inflation are real variables. 
C)  are real variables;inflation is a nominal variable. 
D)  are nominal variables;inflation is a real variable. 
A)  and inflation are nominal variables. 
B)  and inflation are real variables. 
C)  are real variables;inflation is a nominal variable. 
D)  are nominal variables;inflation is a real variable.

Question 8

The value of money falls as the price level

Accepted Answer

A)  rises,because the number of dollars needed to buy a representative basket of goods rises. 
B)  rises,because the number of dollars needed to buy a representative basket of goods falls. 
C)  falls,because the number of dollars needed to buy a representative basket of goods rises. 
D)  falls,because the number of dollars needed to buy a representative basket of goods falls. 
A)  rises,because the number of dollars needed to buy a representative basket of goods rises. 
B)  rises,because the number of dollars needed to buy a representative basket of goods falls. 
C)  falls,because the number of dollars needed to buy a representative basket of goods rises. 
D)  falls,because the number of dollars needed to buy a representative basket of goods falls.

Question 9

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 3 percent;the tax rate is 20 percent. 
B)  Inflation is 2 percent;the tax rate is 40 percent. 
C)  Inflation is 1 percent;the tax rate is 60 percent. 
D)  The after-tax real interest rate is the same for all of the above. 
A)  Inflation is 3 percent;the tax rate is 20 percent. 
B)  Inflation is 2 percent;the tax rate is 40 percent. 
C)  Inflation is 1 percent;the tax rate is 60 percent. 
D)  The after-tax real interest rate is the same for all of the above.

Question 10

When the price level rises,the number of dollars needed to buy a representative basket of goods

Accepted Answer

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

Question 11

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 12

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)  increase employment. 
B)  increase the price level. 
C)  increase the incentive to save. 
D)  not increase any of the above. 
A)  increase employment. 
B)  increase the price level. 
C)  increase the incentive to save. 
D)  not increase any of the above.

Question 13

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Accepted Answer

A)  increases the price level by more than 5 percent. 
B)  increases the price level by 5 percent. 
C)  increases the price level by 5 percent 
D)  does not change the price level. 
A)  increases the price level by more than 5 percent. 
B)  increases the price level by 5 percent. 
C)  increases the price level by 5 percent 
D)  does not change the price level.

Question 14

Economists agree that

Accepted Answer

A)  neither high inflation nor moderate inflation is very costly. 
B)  both high and moderate inflation are quite costly. 
C)  high inflation is costly,but they disagree about the costs of moderate inflation. 
D)  moderate inflation is as costly as high inflation. 
A)  neither high inflation nor moderate inflation is very costly. 
B)  both high and moderate inflation are quite costly. 
C)  high inflation is costly,but they disagree about the costs of moderate inflation. 
D)  moderate inflation is as costly as high inflation.

Question 15

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.  
-Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

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 16

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 17

When we assume that the supply of money is a variable that the central bank controls,we

Accepted Answer

A)  must then assume as well that the demand for money is not influenced by the value of money. 
B)  must then assume as well that the price level is unrelated to the value of money. 
C)  are ignoring the fact that,in the real world,households are suppliers of money also. 
D)  are ignoring the complications introduced by the role of the banking system. 
A)  must then assume as well that the demand for money is not influenced by the value of money. 
B)  must then assume as well that the price level is unrelated to the value of money. 
C)  are ignoring the fact that,in the real world,households are suppliers of money also. 
D)  are ignoring the complications introduced by the role of the banking system.

Question 18

A rising price level eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)  the quantity theory and evidence from four hyperinflations during the 1920's 
B)  the quantity theory but not evidence from four hyperinflations during the 1920's 
C)  evidence from four hyperinflations during the 1920's but not the quantity theory 
D)  neither the quantity theory nor evidence from four hyperinflation during the 1920's 
A)  the quantity theory and evidence from four hyperinflations during the 1920's 
B)  the quantity theory but not evidence from four hyperinflations during the 1920's 
C)  evidence from four hyperinflations during the 1920's but not the quantity theory 
D)  neither the quantity theory nor evidence from four hyperinflation during the 1920's

Question 20

Which of the following is correct?

Accepted Answer

A)  A period of hyperinflation is a period of extraordinarily high or extraordinarily low inflation. 
B)  A period of deflation is any period during which the inflation rate is decreasing. 
C)  During the 1990s,U.S.inflation averaged about 2 percent per year. 
D)  All of the above are correct. 
A)  A period of hyperinflation is a period of extraordinarily high or extraordinarily low inflation. 
B)  A period of deflation is any period during which the inflation rate is decreasing. 
C)  During the 1990s,U.S.inflation averaged about 2 percent per year. 
D)  All of the above are correct.

Exam 30: Money Growth and Inflation

The inflation tax falls mostly heavily on

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Given a nominal interest rate of 6 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

When inflation rises,people tend to go to the bank

Interest rates adjusted for the effects of inflation

The value of money falls as the price level

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

When the price level rises,the number of dollars needed to buy a representative basket of goods

The quantity theory of money can explain hyperinflations but not moderate inflation.

Monetary neutrality implies that an increase in the quantity of money will

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Economists agree that

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

According to the Fisher effect,if inflation rises then the nominal interest rate rises.

When we assume that the supply of money is a variable that the central bank controls,we

A rising price level eliminates an excess supply of money.

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Which of the following is correct?

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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 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 Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?