Exam 11: Money Growth and Inflation

In this problem we try to establish a link between the quantity equation,MdV = PY,and the money demand-money supply diagram (Md is the quantity of money demanded).In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded,draw the Md - P curve that is implied by the quantity equation.

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

According to the classical dichotomy,what is influenced by monetary factors?

Which statement best characterizes the effect of inflation?

If the nominal interest rate is 7 percent and the inflation rate is 4 percent,what is the real interest rate?

Suppose Bob considers borrowing $100 from Sheila at a 10 percent interest rate.They both think that a 4 percent real interest rate would be fair. a)What was the inflation rate they both expected? b)If the inflation rate turned out to be 8 percent,how much was the real interest rate? Who gained and who lost from this transaction,and how much because of unexpected inflation? c)If there was an interest tax of 30 percent,what is the after-tax real interest rate,with the inflation rate of 8 percent?

You put money in an account that earns 8 percent.The inflation rate is 4 percent,and your marginal tax rate is 10 percent.What is your after-tax real rate of interest?

When the money market is depicted in a diagram with the value of money on the vertical axis,what would shift money demand to the right?

People use more resources to reduce their money holdings because of high inflation.What is this an example of?

When a graph of the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal.This is due to adjustments in which of the following?

Velocity in the country of Shem is always stable.In 2014,the money supply was $200 billion and the GDP price deflator was four times as high as it was in the base year.In 2015,the money supply increased to $240 billion,the price level increased by 15 percent,and nominal GDP equalled $1200 billion.By how much did real GDP increase between 2014 and 2015?

Inflation induces people to spend more resources maintaining lower money holdings.This is called shoe leather costs.

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

If the Bank of Canada increases the money supply,the equilibrium value of money decreases and the equilibrium price level must increase.

If inflation is more than expected,how are creditors or debtors affected?

If the money supply growth rate permanently increased from 4 percent to 10 percent,what would we expect to happen to the inflation rate and the nominal interest rate?

When the value of money rises,what happens to the number of dollars needed to buy a representative basket of goods?

Which statement best defines the velocity of money?

When the number of dollars needed to buy a representative basket of goods falls,what happens to the value of money?

When the money market is represented in a diagram with the value of money on the vertical axis,which statement best describes the effects of an increase in money supply?