Exam 12: Money Growth and Inflation

The velocity of money is

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

Inflation can be measured by the

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

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

Define each of the symbols and explain the meaning of

The increase in the overall level of prices is known as .

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

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

List and define any two of the costs of high inflation.

When deciding how much to save, people care most about

In United States history there were long periods when most prices fell.

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Menu costs refers to

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

The inflation rate is measured as the percentage change in a price index.

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.