Question 1

When the money market is drawn with the value of money on the vertical axis,if the value of money is below the equilibrium level,

Accepted Answer

A)  the price level will rise. 
B)  the value of money will rise. 
C)  money demand will shift leftward. 
D)  money demand will shift rightward. 
A)  the price level will rise. 
B)  the value of money will rise. 
C)  money demand will shift leftward. 
D)  money demand will shift rightward.

Question 2

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 3

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

Accepted Answer

A)  increases the price level and increases the value of money. 
B)  increases the price level and decreases the value of money. 
C)  decreases the price level and increases the value of money. 
D)  decreases the price level and decreases the value of money. 
A)  increases the price level and increases the value of money. 
B)  increases the price level and decreases the value of money. 
C)  decreases the price level and increases the value of money. 
D)  decreases the price level and decreases the value of money.

Question 4

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 growth of real GDP. 
B)  the inflation rate but not the growth rate of real GDP. 
C)  the growth rate of real GDP,but not the inflation rate. 
D)  neither the inflation rate nor the growth rate of real GDP. 
A)  the inflation rate and growth of real GDP. 
B)  the inflation rate but not the growth rate of real GDP. 
C)  the growth rate of real GDP,but not the inflation rate. 
D)  neither the inflation rate nor the growth rate of real GDP.

Question 5

The nominal interest rate is 5 percent and the real interest rate is 2 percent.What is the inflation rate?

Accepted Answer

A)  10 percent 
B)  7 percent 
C)  3 percent 
D)  2.5 percent 
A)  10 percent 
B)  7 percent 
C)  3 percent 
D)  2.5 percent

Question 6

Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.

Accepted Answer

@#IMG-DLM& When the Fed sells government bonds,the

Question 7

The price level rises if either

Accepted Answer

A)  money demand shifts rightward or money supply shifts leftward;this rise in the price level is associated with a rise in the value of money. 
B)  money demand shifts rightward or money supply shifts leftward;this rise in the price level is associated with a fall in the value of money. 
C)  money demand shifts leftward or money supply shifts rightward;this rise in the price level is associated with a rise in the value of money. 
D)  money demand shifts leftward or money supply shifts rightward;this rise in the price level is associated with a fall in the value of money. 
A)  money demand shifts rightward or money supply shifts leftward;this rise in the price level is associated with a rise in the value of money. 
B)  money demand shifts rightward or money supply shifts leftward;this rise in the price level is associated with a fall in the value of money. 
C)  money demand shifts leftward or money supply shifts rightward;this rise in the price level is associated with a rise in the value of money. 
D)  money demand shifts leftward or money supply shifts rightward;this rise in the price level is associated with a fall in the value of money.

Question 8

Tara deposits money into an account with a nominal interest rate of 6 percent.She expects inflation to be 2 percent.Her tax rate is 20 percent.Tara's after-tax real rate of interest

Accepted Answer

A)  will be 2.8 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent. 
B)  will be 2.8 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent. 
C)  will be 3.2 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent. 
D)  will be 3.2 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent. 
A)  will be 2.8 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent. 
B)  will be 2.8 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent. 
C)  will be 3.2 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent. 
D)  will be 3.2 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent.

Question 9

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 10

Serena purchased 10 shares of GLC,Inc.stock for $200 per share;one year later she sold the 10 shares for $220 a share.Over the year,the price level increased from 135.0 to 143.1.The tax rate on capital gains is 50 percent.If the capital gains tax is on nominal gains,how much tax does Serena pay on her gain?

Accepted Answer

A)  $90 
B)  $95 
C)  $100 
D)  None of the above is correct. 
A)  $90 
B)  $95 
C)  $100 
D)  None of the above is correct.

Question 11

The supply of money is determined by

Accepted Answer

A)  the price level. 
B)  the Treasury and Congressional Budget Office. 
C)  the Federal Reserve System. 
D)  the demand for money. 
A)  the price level. 
B)  the Treasury and Congressional Budget Office. 
C)  the Federal Reserve System. 
D)  the demand for money.

Question 12

An increase in the price level makes the value of money

Accepted Answer

A)  increase,so people want to hold more of it. 
B)  increase,so people want to hold less of it. 
C)  decrease,so people want to hold more of it. 
D)  decrease,so people want to hold less of it. 
A)  increase,so people want to hold more of it. 
B)  increase,so people want to hold less of it. 
C)  decrease,so people want to hold more of it. 
D)  decrease,so people want to hold less of it.

Question 13

People can reduce the inflation tax by

Accepted Answer

A)  reducing savings. 
B)  increasing deductions on their income tax. 
C)  reducing cash holdings. 
D)  None of the above is correct. 
A)  reducing savings. 
B)  increasing deductions on their income tax. 
C)  reducing cash holdings. 
D)  None of the above is correct.

Question 14

When the money market is drawn with the value of money on the vertical axis,if the Federal Reserve buys bonds,then the money supply curve

Accepted Answer

A)  shifts rightward,causing the price level to rise. 
B)  shifts rightward,causing the price level to fall. 
C)  shifts leftward,causing the price level to rise. 
D)  shifts leftward,causing the price level to fall. 
A)  shifts rightward,causing the price level to rise. 
B)  shifts rightward,causing the price level to fall. 
C)  shifts leftward,causing the price level to rise. 
D)  shifts leftward,causing the price level to fall.

Question 15

The Fisher effect says that

Accepted Answer

A)  the nominal interest rate adjusts one for one with the inflation rate. 
B)  the growth rate of the money supply is negatively related to the velocity of money. 
C)  real variables are heavily influenced by the monetary system. 
D)  All of the above are correct. 
A)  the nominal interest rate adjusts one for one with the inflation rate. 
B)  the growth rate of the money supply is negatively related to the velocity of money. 
C)  real variables are heavily influenced by the monetary system. 
D)  All of the above are correct.

Question 16

Other things the same,an increase in velocity means that

Accepted Answer

A)  the rate at which money changes hands falls,so the price level rises. 
B)  the rate at which money changes hands falls,so the price level falls. 
C)  the rate at which money changes hands rises,so the price level rises. 
D)  the rate at which money changes hands rises,so the price level falls. 
A)  the rate at which money changes hands falls,so the price level rises. 
B)  the rate at which money changes hands falls,so the price level falls. 
C)  the rate at which money changes hands rises,so the price level rises. 
D)  the rate at which money changes hands rises,so the price level falls.

Question 17

Figure 30-1  
-Refer to Figure 30-1.If the money supply is MS2 and the value of money is 2,then

Accepted Answer

A)  the value of money is lower than its equilibrium level. 
B)  the price level is higher than its equilibrium level. 
C)  the quantity of money demanded is greater than the quantity of money supplied. 
D)  the quantity of money supplied is greater than the quantity of money demanded. 
A)  the value of money is lower than its equilibrium level. 
B)  the price level is higher than its equilibrium level. 
C)  the quantity of money demanded is greater than the quantity of money supplied. 
D)  the quantity of money supplied is greater than the quantity of money demanded.

Question 18

Velocity is computed as

Accepted Answer

A)  (PY)/M. 
B)  (PM)/Y. 
C)  (YM)/P. 
D)  (YM)/V. 
A)  (PY)/M. 
B)  (PM)/Y. 
C)  (YM)/P. 
D)  (YM)/V.

Question 19

When the money market is drawn with the value of money on the vertical axis,if the price level is above the equilibrium level,there is an

Accepted Answer

A)  excess demand for money,so the price level will rise. 
B)  excess demand for money,so the price level will fall. 
C)  excess supply of money,so the price level will rise. 
D)  excess supply of money,so the price level will fall. 
A)  excess demand for money,so the price level will rise. 
B)  excess demand for money,so the price level will fall. 
C)  excess supply of money,so the price level will rise. 
D)  excess supply of money,so the price level will fall.

Question 20

When inflation rises,people

Accepted Answer

A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes. 
A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes.

Exam 30: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis,if the value of money is below the equilibrium level,

The Fisher effect

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

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

The nominal interest rate is 5 percent and the real interest rate is 2 percent.What is the inflation rate?

Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.

The price level rises if either

Tara deposits money into an account with a nominal interest rate of 6 percent.She expects inflation to be 2 percent.Her tax rate is 20 percent.Tara's after-tax real rate of interest

Dollar prices and relative prices are both nominal variables.

The supply of money is determined by

An increase in the price level makes the value of money

People can reduce the inflation tax by

When the money market is drawn with the value of money on the vertical axis,if the Federal Reserve buys bonds,then the money supply curve

The Fisher effect says that

Other things the same,an increase in velocity means that

Figure 30-1 -Refer to Figure 30-1.If the money supply is MS2 and the value of money is 2,then

Velocity is computed as

When the money market is drawn with the value of money on the vertical axis,if the price level is above the equilibrium level,there is an

When inflation rises,people

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 30-1 -Refer to Figure 30-1.If the money supply is MS₂ and the value of money is 2,then