Exam 12: Money Growth and Inflation

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Most economists believe that monetary neutrality provides

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. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

If V and M are constant and Y doubles, the quantity equation implies that the price level

In the last part of the 1800's

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

In which of the following cases was the inflation rate 12 percent over the last year?

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then

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

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Real GDP measures output of final goods and services in physical units.

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

As the price level rises, the value of money

The primary reason people hold money is