Question 1

Based on past experience,if a country is experiencing hyperinflation,then which of the following would be a reasonable guess?

Accepted Answer

A)  The country has high money supply growth. 
B)  Inflation is acting like a tax on everyone who holds money. 
C)  The government is printing money to finance its expenditures. 
D)  All of the above are correct. 
A)  The country has high money supply growth. 
B)  Inflation is acting like a tax on everyone who holds money. 
C)  The government is printing money to finance its expenditures. 
D)  All of the above are correct.

Question 2

Suppose there is a surplus in the money market.

Accepted Answer

A)  This could have been created by an increase in the money supply.The value of money will rise. 
B)  This could have been created by an increase in the money supply.The value of money will fall. 
C)  This could have been created by a decrease in the money supply.The value of money will rise. 
D)  This could have been created by a decrease in the money supply.The value of money will fall. 
A)  This could have been created by an increase in the money supply.The value of money will rise. 
B)  This could have been created by an increase in the money supply.The value of money will fall. 
C)  This could have been created by a decrease in the money supply.The value of money will rise. 
D)  This could have been created by a decrease in the money supply.The value of money will fall.

Question 3

Suppose that velocity rises while the money supply stays the same.It follows that

Accepted Answer

A)  P x Y must rise. 
B)  P x Y must fall. 
C)  P x Y must be unchanged. 
D)  the effects on P x Y are uncertain. 
A)  P x Y must rise. 
B)  P x Y must fall. 
C)  P x Y must be unchanged. 
D)  the effects on P x Y are uncertain.

Question 4

The U.S.Treasury Department began issuing inflation-indexed bonds in early 1997.Since these assets are virtually risk free,both in terms of default risk and inflation risk,will they quickly replace all other kinds of assets that still entail risk of one kind or another,such as ordinary government bonds or corporate bonds? Explain.

Accepted Answer

When individuals are choosing between as

Question 5

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

Accepted Answer

A)  the real interest rate 
B)  real GDP 
C)  the real wage 
D)  None of the above increases. 
A)  the real interest rate 
B)  real GDP 
C)  the real wage 
D)  None of the above increases.

Question 6

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent.What is the real interest rate?

Accepted Answer

A)  7 percent 
B)  5.5 percent 
C)  1.75 percent 
D)  1.5 percent 
A)  7 percent 
B)  5.5 percent 
C)  1.75 percent 
D)  1.5 percent

Question 7

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

Accepted Answer

A)  shifts rightward,causing the value of money measured in terms of goods and services to rise. 
B)  shifts rightward,causing the value of money measured in terms of goods and services to fall. 
C)  shifts leftward,causing the value of money measured in terms of goods and services to rise. 
D)  shifts leftward,causing the value of money measured in terms of goods and services to fall. 
A)  shifts rightward,causing the value of money measured in terms of goods and services to rise. 
B)  shifts rightward,causing the value of money measured in terms of goods and services to fall. 
C)  shifts leftward,causing the value of money measured in terms of goods and services to rise. 
D)  shifts leftward,causing the value of money measured in terms of goods and services to fall.

Question 8

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.  
-Refer to Figure 30-2.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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 9

When prices are falling,economists say that there is

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation. 
A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation.

Question 10

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

Accepted Answer

A)  the price level and the value of money rise. 
B)  the price level rises and the value of money falls. 
C)  the price level falls and the value of money rises. 
D)  the price level and the value of money fall. 
A)  the price level and the value of money rise. 
B)  the price level rises and the value of money falls. 
C)  the price level falls and the value of money rises. 
D)  the price level and the value of money fall.

Question 11

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A)  are positively related,which is consistent with the quantity theory of money. 
B)  are positively related,which is not consistent with the quantity theory of money. 
C)  are not related in a discernible fashion,which is consistent with the quantity theory of money. 
D)  are not related in a discernible fashion,which is not consistent with the quantity theory of money. 
A)  are positively related,which is consistent with the quantity theory of money. 
B)  are positively related,which is not consistent with the quantity theory of money. 
C)  are not related in a discernible fashion,which is consistent with the quantity theory of money. 
D)  are not related in a discernible fashion,which is not consistent with the quantity theory of money.

Question 12

With the value of money on the vertical axis,the money supply curve is

Accepted Answer

A)  upward-sloping. 
B)  downward-sloping. 
C)  horizontal. 
D)  vertical. 
A)  upward-sloping. 
B)  downward-sloping. 
C)  horizontal. 
D)  vertical.

Question 13

Which of the following statements about U.S.inflation is not correct?

Accepted Answer

A)  Low inflation was viewed as a triumph of President Carter's economic policy. 
B)  There were long periods in the nineteenth century during which prices fell. 
C)  The U.S.public has viewed inflation rates of even 7 percent as a major economic problem. 
D)  The U.S.inflation rate has varied over time,but international data show even more variation. 
A)  Low inflation was viewed as a triumph of President Carter's economic policy. 
B)  There were long periods in the nineteenth century during which prices fell. 
C)  The U.S.public has viewed inflation rates of even 7 percent as a major economic problem. 
D)  The U.S.inflation rate has varied over time,but international data show even more variation.

Question 14

On a given morning,Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Accepted Answer

A)  The $80 is a real variable.The quantity of shoes is a nominal variable. 
B)  The $80 is a nominal variable.The quantity of shoes is a real variable. 
C)  Both the $80 and the quantity of shoes are nominal variables. 
D)  Both the $80 and the quantity of shoes are real variables. 
A)  The $80 is a real variable.The quantity of shoes is a nominal variable. 
B)  The $80 is a nominal variable.The quantity of shoes is a real variable. 
C)  Both the $80 and the quantity of shoes are nominal variables. 
D)  Both the $80 and the quantity of shoes are real variables.

Question 15

According to the assumptions of the quantity theory of money,if the money supply increases 5 percent,then

Accepted Answer

A)  both the price level and real GDP would rise by 5 percent. 
B)  the price level would rise by 5 percent and real GDP would be unchanged. 
C)  the price level would be unchanged and real GDP would rise by 5 percent. 
D)  both the price level and real GDP would be unchanged. 
A)  both the price level and real GDP would rise by 5 percent. 
B)  the price level would rise by 5 percent and real GDP would be unchanged. 
C)  the price level would be unchanged and real GDP would rise by 5 percent. 
D)  both the price level and real GDP would be unchanged.

Question 16

If the Fed increases the money supply,the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  the price level 
B)  nominal wages 
C)  nominal GDP 
D)  All of the above are correct. 
A)  the price level 
B)  nominal wages 
C)  nominal GDP 
D)  All of the above are correct.

Question 18

Suppose the nominal interest rate is 10 percent;the tax rate on interest income is 28 percent,and the inflation rate is 6 percent.Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 19

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  8 percent 
D)  10 percent 
A)  4 percent 
B)  6 percent 
C)  8 percent 
D)  10 percent

Question 20

The inflation tax

Accepted Answer

A)  transfers wealth from the government to households. 
B)  is the increase in income taxes due to lack of indexation. 
C)  is a tax on everyone who holds money. 
D)  All of the above are correct. 
A)  transfers wealth from the government to households. 
B)  is the increase in income taxes due to lack of indexation. 
C)  is a tax on everyone who holds money. 
D)  All of the above are correct.

Exam 30: Money Growth and Inflation

Based on past experience,if a country is experiencing hyperinflation,then which of the following would be a reasonable guess?

Suppose there is a surplus in the money market.

Suppose that velocity rises while the money supply stays the same.It follows that

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

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent.What is the real interest rate?

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

Figure 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-2.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

When prices are falling,economists say that there is

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

The evidence from hyperinflations indicates that money growth and inflation

With the value of money on the vertical axis,the money supply curve is

Which of the following statements about U.S.inflation is not correct?

On a given morning,Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

According to the assumptions of the quantity theory of money,if the money supply increases 5 percent,then

If the Fed increases the money supply,the equilibrium value of money decreases and the equilibrium price level increases.

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

Suppose the nominal interest rate is 10 percent;the tax rate on interest income is 28 percent,and the inflation rate is 6 percent.Then the after-tax real interest rate is -3.2 percent.

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent,what is the nominal interest rate?

The inflation tax

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 30-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-2.Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?