Question 1

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 3.6 percent over the last 80 years. 
B)  There was about a 17-fold increase in the price level over the last 80 years. 
C)  Inflation in the 1970s was below the average over the last 80 years. 
D)  The United States has experienced periods of deflation. 
A)  Prices rose at an average annual rate of about 3.6 percent over the last 80 years. 
B)  There was about a 17-fold increase in the price level over the last 80 years. 
C)  Inflation in the 1970s was below the average over the last 80 years. 
D)  The United States has experienced periods of deflation.

Question 2

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 3

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A)  the inflation tax. 
B)  menu costs. 
C)  the inflation fallacy. 
D)  shoeleather costs. 
A)  the inflation tax. 
B)  menu costs. 
C)  the inflation fallacy. 
D)  shoeleather costs.

Question 4

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after­tax real rate of interest

Accepted Answer

A)  will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
B)  will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent. 
C)  will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
D)  will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent. 
A)  will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
B)  will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent. 
C)  will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent. 
D)  will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.

Question 5

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 6

An excess supply of money is eliminated by a decrease in the value of money.

Accepted Answer

A) True 
 B)False

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 right, causing the price level to rise. 
B)  shifts right, causing the price level to fall. 
C)  shifts left, causing the price level to rise. 
D)  shifts left, causing the price level to fall. 
A)  shifts right, causing the price level to rise. 
B)  shifts right, causing the price level to fall. 
C)  shifts left, causing the price level to rise. 
D)  shifts left, causing the price level 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. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)  -43 percent 
B)  -57 percent 
C)  57 percent 
D)  75 percent 
A)  -43 percent 
B)  -57 percent 
C)  57 percent 
D)  75 percent

Question 9

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 10

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

Accepted Answer

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

Question 11

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 12

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

Accepted Answer

The answer of An increase in the price level causes...

Question 13

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A)  People who held money would feel poorer. 
B)  Prices would rise. 
C)  People who had lent money at a fixed interest rate would feel poorer. 
D)  All of the above are correct. 
A)  People who held money would feel poorer. 
B)  Prices would rise. 
C)  People who had lent money at a fixed interest rate would feel poorer. 
D)  All of the above are correct.

Question 15

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 16

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

Accepted Answer

A)  the inflation rate and real interest rates. 
B)  the inflation rate, but not real interest rates. 
C)  real interest rates, but not the inflation rate. 
D)  neither the inflation rate nor real interest rates. 
A)  the inflation rate and real interest rates. 
B)  the inflation rate, but not real interest rates. 
C)  real interest rates, but not the inflation rate. 
D)  neither the inflation rate nor real interest rates.

Question 17

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Question 18

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)  The dollar amount you pay is a nominal value. The number of goods you give up is a real value. 
B)  The dollar amount you pay is a real value. The number of goods you give up is a nominal value. 
C)  Both the dollar amount you pay and the goods you give up are nominal values. 
D)  Both the dollar amount you pay and the goods you give up are real values. 
A)  The dollar amount you pay is a nominal value. The number of goods you give up is a real value. 
B)  The dollar amount you pay is a real value. The number of goods you give up is a nominal value. 
C)  Both the dollar amount you pay and the goods you give up are nominal values. 
D)  Both the dollar amount you pay and the goods you give up are real values.

Question 19

The Fisher effect is crucial for understanding changes over time in

Accepted Answer

A)  the nominal interest rate. 
B)  the real interest rate. 
C)  the inflation rate. 
D)  the unemployment rate. 
A)  the nominal interest rate. 
B)  the real interest rate. 
C)  the inflation rate. 
D)  the unemployment rate.

Question 20

If monetary neutrality holds, then an increase in the money supply

Accepted Answer

A)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. 
B)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. 
C)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. 
D)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run. 
A)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. 
B)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. 
C)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. 
D)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

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

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

The idea that inflation by itself reduces people's purchasing power is called

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's aftertax real rate of interest

Nominal GDP measures output of final goods and services in physical terms.

An excess supply of money is eliminated by a decrease in the value of money.

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?

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

When inflation rises, people will desire to hold

An increase in the price level causes the value of money to _. Therefore, people will want to hold money, because the cost of their purchases has increased.

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

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

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

The Fisher effect is crucial for understanding changes over time in

If monetary neutrality holds, then an increase in the money supply

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Exam 12: Money Growth and Inflation

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

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

The idea that inflation by itself reduces people's purchasing power is called

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after­tax real rate of interest

Nominal GDP measures output of final goods and services in physical terms.

An excess supply of money is eliminated by a decrease in the value of money.

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?

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

When inflation rises, people will desire to hold

An increase in the price level causes the value of money to _____. Therefore, people will want to hold ____ money, because the cost of their purchases has increased.

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

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

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

The Fisher effect is crucial for understanding changes over time in

If monetary neutrality holds, then an increase in the money supply

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's aftertax real rate of interest

An increase in the price level causes the value of money to _. Therefore, people will want to hold money, because the cost of their purchases has increased.

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.