Question 1

Inflation is costly only if it is unanticipated.

Accepted Answer

A) True 
 B)False

Question 2

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 3

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)  Inflation is 5 percent;the tax rate is 20 percent. 
B)  Inflation is 4 percent;the tax rate is 30 percent. 
C)  Inflation is 3 percent;the tax rate is 40 percent. 
D)  The after-tax real interest rate is the same for all of the above. 
A)  Inflation is 5 percent;the tax rate is 20 percent. 
B)  Inflation is 4 percent;the tax rate is 30 percent. 
C)  Inflation is 3 percent;the tax rate is 40 percent. 
D)  The after-tax real interest rate is the same for all of the above.

Question 4

Based on the quantity equation,if M = 150,V = 4,and Y = 200,then P =

Accepted Answer

A)  1/3. 
B)  1/2. 
C)  2 
D)  3. 
A)  1/3. 
B)  1/2. 
C)  2 
D)  3.

Question 5

For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in the money supply creates an excess

Accepted Answer

A)  supply of money that is eliminated by rising prices. 
B)  supply of money that is eliminated by falling prices. 
C)  demand for money that is eliminated by rising prices. 
D)  demand for money that is eliminated by falling prices. 
A)  supply of money that is eliminated by rising prices. 
B)  supply of money that is eliminated by falling prices. 
C)  demand for money that is eliminated by rising prices. 
D)  demand for money that is eliminated by falling prices.

Question 7

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low. 
A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low.

Question 8

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

Accepted Answer

A)  your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage also increased. 
B)  your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage decreased. 
C)  your real wage increase.If your real wage rose by a greater percentage than the price level,then your nominal wage also increased. 
D)  your real wage decrease.If your real wage rose by a greater percentage than the price level,then your nominal wage decreased. 
A)  your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage also increased. 
B)  your nominal wage increase.If your nominal wage rose by a greater percentage than the price level,then your real wage decreased. 
C)  your real wage increase.If your real wage rose by a greater percentage than the price level,then your nominal wage also increased. 
D)  your real wage decrease.If your real wage rose by a greater percentage than the price level,then your nominal wage decreased.

Question 9

According to the quantity equation,if P = 4 and Y = 450,then which of the following pairs of values are possible?

Accepted Answer

A)  M = 800,V = 4 
B)  M = 600,V =3 
C)  M = 400,V =2 
D)  M = 200,V =1 
A)  M = 800,V = 4 
B)  M = 600,V =3 
C)  M = 400,V =2 
D)  M = 200,V =1

Question 10

In the U.S. ,taxes on capital gains are computed using

Accepted Answer

A)  nominal gains.This is one way by which higher inflation discourages saving. 
B)  nominal gains.This is one way by which higher inflation encourages saving. 
C)  real gains.This is one way by which higher inflation discourages saving. 
D)  real gains.This is one way by which higher inflation encourages saving. 
A)  nominal gains.This is one way by which higher inflation discourages saving. 
B)  nominal gains.This is one way by which higher inflation encourages saving. 
C)  real gains.This is one way by which higher inflation discourages saving. 
D)  real gains.This is one way by which higher inflation encourages saving.

Question 11

During the last tax year you lent money at a nominal rate of 6 percent.Actual inflation was 1 percent,but people had been expecting 1.5 percent .This difference between actual and expected inflation

Accepted Answer

A)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected. 
B)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected. 
C)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected. 
D)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected. 
A)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected. 
B)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected. 
C)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected. 
D)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.

Question 12

When the money market is drawn with the value of money on the vertical axis,an increase in the price level causes a

Accepted Answer

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

Question 13

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.What quantity is measured along the vertical axis?

Accepted Answer

A)  the price level 
B)  the velocity of money 
C)  the value of money 
D)  the quantity of money 
A)  the price level 
B)  the velocity of money 
C)  the value of money 
D)  the quantity of money

Question 14

The money supply curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 15

If P denotes the price of goods and services measured in terms of money,then

Accepted Answer

A)  1/P represents the value of money measured in terms of goods and services. 
B)  P can be interpreted as the inflation rate. 
C)  the supply of money influences the value of P,but the demand for money does not. 
D)  All of the above are correct. 
A)  1/P represents the value of money measured in terms of goods and services. 
B)  P can be interpreted as the inflation rate. 
C)  the supply of money influences the value of P,but the demand for money does not. 
D)  All of the above are correct.

Question 16

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 real interest rates. 
B)  the inflation rate,but not real interest rates. 
C)  real interest rates,but not the inflation rate. 
D)  neither the inflation rate nor real interest rates. 
A)  the inflation rate and real interest rates. 
B)  the inflation rate,but not real interest rates. 
C)  real interest rates,but not the inflation rate. 
D)  neither the inflation rate nor real interest rates.

Question 17

A rising value of money eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that in some tax year you earned a nominal interest rate of 4 percent.During the time you held these funds inflation was 1 percent.You compute that you made a real after-tax interest rate of 2 percent.What was your tax rate?

Accepted Answer

A)  50 percent 
B)  33.3 percent 
C)  25 percent 
D)  None of the above are correct. 
A)  50 percent 
B)  33.3 percent 
C)  25 percent 
D)  None of the above are correct.

Question 19

You put money into an account and earn an after-tax real interest rate of 2.5 percent.If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent,then what is the tax rate?

Accepted Answer

A)  28.00 percent 
B)  36.25 percent 
C)  43.75 percent 
D)  67.50 percent 
A)  28.00 percent 
B)  36.25 percent 
C)  43.75 percent 
D)  67.50 percent

Question 20

The velocity of money is

Accepted Answer

A)  the rate at which the Fed puts money into the economy. 
B)  the same thing as the long-term growth rate of the money supply. 
C)  the money supply divided by nominal GDP. 
D)  the average number of times per year a dollar is spent. 
A)  the rate at which the Fed puts money into the economy. 
B)  the same thing as the long-term growth rate of the money supply. 
C)  the money supply divided by nominal GDP. 
D)  the average number of times per year a dollar is spent.

Exam 30: Money Growth and Inflation

Inflation is costly only if it is unanticipated.

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?

Based on the quantity equation,if M = 150,V = 4,and Y = 200,then P =

For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.

A decrease in the money supply creates an excess

Wealth is redistributed from creditors to debtors when inflation was expected to be

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

According to the quantity equation,if P = 4 and Y = 450,then which of the following pairs of values are possible?

In the U.S. ,taxes on capital gains are computed using

During the last tax year you lent money at a nominal rate of 6 percent.Actual inflation was 1 percent,but people had been expecting 1.5 percent .This difference between actual and expected inflation

When the money market is drawn with the value of money on the vertical axis,an increase in the price level causes a

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.What quantity is measured along the vertical axis?

The money supply curve shifts to the left when the Fed buys government bonds.

If P denotes the price of goods and services measured in terms of money,then

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

A rising value of money eliminates an excess supply of money.

Suppose that in some tax year you earned a nominal interest rate of 4 percent.During the time you held these funds inflation was 1 percent.You compute that you made a real after-tax interest rate of 2 percent.What was your tax rate?

You put money into an account and earn an after-tax real interest rate of 2.5 percent.If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent,then what is the tax rate?

The velocity of money is

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

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