Question 1

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)  spend more time looking for bargains. 
B)  spend less time looking for bargains. 
C)  hold more money. 
D)  hold less money. 
A)  spend more time looking for bargains. 
B)  spend less time looking for bargains. 
C)  hold more money. 
D)  hold less money.

Question 2

When inflation rises,people will desire to hold

Accepted Answer

A)  less money and will go to the bank less frequently. 
B)  less money and will go to the bank more frequently. 
C)  more money and will go to the bank less frequently. 
D)  more money and will go to the bank more frequently. 
A)  less money and will go to the bank less frequently. 
B)  less money and will go to the bank more frequently. 
C)  more money and will go to the bank less frequently. 
D)  more money and will go to the bank more frequently.

Question 3

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A)  is irrelevant for understanding the determinants of nominal and real variables. 
B)  determines nominal variables,but not real variables. 
C)  determines real variables,but not nominal variables. 
D)  is a determinant of both real and nominal variables. 
A)  is irrelevant for understanding the determinants of nominal and real variables. 
B)  determines nominal variables,but not real variables. 
C)  determines real variables,but not nominal variables. 
D)  is a determinant of both real and nominal variables.

Question 4

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A)  menu costs 
B)  inflation tax 
C)  shoeleather costs 
D)  All of the above are correct. 
A)  menu costs 
B)  inflation tax 
C)  shoeleather costs 
D)  All of the above are correct.

Question 5

You put money into an account and earn a real interest rate of 6 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A)  4.8 percent 
B)  3.2 percent 
C)  2.8 percent 
D)  None of the above is correct. 
A)  4.8 percent 
B)  3.2 percent 
C)  2.8 percent 
D)  None of the above is correct.

Question 6

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

Accepted Answer

A)  3 percent. 
B)  4 percent. 
C)  8 percent. 
D)  12 percent. 
A)  3 percent. 
B)  4 percent. 
C)  8 percent. 
D)  12 percent.

Question 7

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

Accepted Answer

A)  Prices rose at an average annual rate of about 4 percent over the last 70 years. 
B)  There was about a 16-fold increase in the price level over the last 70 years. 
C)  Inflation in the 1970s was below the average over the last 70 years. 
D)  During its history the United States has experienced periods of deflation. 
A)  Prices rose at an average annual rate of about 4 percent over the last 70 years. 
B)  There was about a 16-fold increase in the price level over the last 70 years. 
C)  Inflation in the 1970s was below the average over the last 70 years. 
D)  During its history the United States has experienced periods of deflation.

Question 8

Suppose over some period of time the money supply tripled,velocity fell by half,and real GDP doubled.According to the quantity equation the price level is now

Accepted Answer

A)  6 times its old value. 
B)  3 times its old value. 
C)  1.5 times its old value. 
D)  0.75 times its old value. 
A)  6 times its old value. 
B)  3 times its old value. 
C)  1.5 times its old value. 
D)  0.75 times its old value.

Question 9

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A)  Increases in the price level can be created by increases in money demand. 
B)  Nominal incomes tend to rise at the same time that the price level is rising. 
C)  As the price level rises,the value of a dollar falls. 
D)  Inflation only changes nominal variables. 
A)  Increases in the price level can be created by increases in money demand. 
B)  Nominal incomes tend to rise at the same time that the price level is rising. 
C)  As the price level rises,the value of a dollar falls. 
D)  Inflation only changes nominal variables.

Question 10

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.If the relevant money-supply curve is the one labeled MS2,then

Accepted Answer

A)  when the money market is in equilibrium,one dollar purchases about one-third of a basket of goods and services. 
B)  when the money market is in equilibrium,one unit of goods and services sells for 33 cents. 
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D)  All of the above are correct. 
A)  when the money market is in equilibrium,one dollar purchases about one-third of a basket of goods and services. 
B)  when the money market is in equilibrium,one unit of goods and services sells for 33 cents. 
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D)  All of the above are correct.

Question 11

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,what is the real interest rate?

Accepted Answer

A)  7 percent 
B)  5 percent 
C)  3 percent 
D)  3/5 percent 
A)  7 percent 
B)  5 percent 
C)  3 percent 
D)  3/5 percent

Question 12

The price of a Honda Accord

Accepted Answer

A)  and the price of a Honda Accord divided by the price of a Honda Civic are both real variables. 
B)  and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables. 
C)  is a real variable,and the price of a Honda Accord divided by a Honda Civic is a nominal variable. 
D)  is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable. 
A)  and the price of a Honda Accord divided by the price of a Honda Civic are both real variables. 
B)  and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables. 
C)  is a real variable,and the price of a Honda Accord divided by a Honda Civic is a nominal variable. 
D)  is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

Question 13

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 14

If velocity = 5,the price level = 1.5,and the real value of output is 2,500,then the quantity of money is

Accepted Answer

A)  333.33. 
B)  750.00. 
C)  1,050.00. 
D)  8,333.33. 
A)  333.33. 
B)  750.00. 
C)  1,050.00. 
D)  8,333.33.

Question 15

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

Accepted Answer

A)  supply of money,causing people to spend more. 
B)  supply of money,causing people to spend less. 
C)  demand for money,causing people to spend more. 
D)  demand for money,causing people to spend less. 
A)  supply of money,causing people to spend more. 
B)  supply of money,causing people to spend less. 
C)  demand for money,causing people to spend more. 
D)  demand for money,causing people to spend less.

Question 16

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.What quantity is measured along the horizontal axis?

Accepted Answer

A)  the price level 
B)  the real interest rate 
C)  the value of money 
D)  the quantity of money 
A)  the price level 
B)  the real interest rate 
C)  the value of money 
D)  the quantity of money

Question 17

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Accepted Answer

A)  nominal GDP and nominal interest rates 
B)  real wages and real GDP 
C)  the price level and nominal GDP 
D)  None of the above is correct. 
A)  nominal GDP and nominal interest rates 
B)  real wages and real GDP 
C)  the price level and nominal GDP 
D)  None of the above is correct.

Question 18

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

Accepted Answer

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

Question 19

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)  is easier to impose. 
B)  reduces inflation. 
C)  falls mainly on high-income individuals. 
D)  reduces the real cost of government expenditure. 
A)  is easier to impose. 
B)  reduces inflation. 
C)  falls mainly on high-income individuals. 
D)  reduces the real cost of government expenditure.

Question 20

According to the principle of monetary neutrality,a decrease in the money supply will not change

Accepted Answer

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

Exam 30: Money Growth and Inflation

Shoeleather costs arise when higher inflation rates induce people to

When inflation rises,people will desire to hold

The classical dichotomy refers to the idea that the supply of money

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

You put money into an account and earn a real interest rate of 6 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

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

Suppose over some period of time the money supply tripled,velocity fell by half,and real GDP doubled.According to the quantity equation the price level is now

Which of the following helps to explain why the inflation fallacy is a fallacy?

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.If the relevant money-supply curve is the one labeled MS2,then

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,what is the real interest rate?

The price of a Honda Accord

Hyperinflations are associated with governments printing money to finance expenditures.

If velocity = 5,the price level = 1.5,and the real value of output is 2,500,then the quantity of money is

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

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.What quantity is measured along the horizontal axis?

According to the classical dichotomy,which of the following is not influenced by monetary factors?

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

Governments may prefer an inflation tax to some other type of tax because the inflation tax

According to the principle of monetary neutrality,a decrease in the money supply will not change

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.If the relevant money-supply curve is the one labeled MS₂,then