Question 1

A decrease in the money supply creates an excess

Accepted Answer

A)  supply of money that is eliminated by rising prices. 
B)  supply of money that is eliminated by falling prices. 
C)  demand for money that is eliminated by rising prices. 
D)  demand for money that is eliminated by falling prices. 
A)  supply of money that is eliminated by rising prices. 
B)  supply of money that is eliminated by falling prices. 
C)  demand for money that is eliminated by rising prices. 
D)  demand for money that is eliminated by falling prices.

Question 2

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Accepted Answer

A)  the price level would fall, so the value of money would fall. 
B)  the price level would fall, so the value of money would rise. 
C)  the price level would rise, so the value of money would fall. 
D)  the price level would rise, so the value of money would rise. 
A)  the price level would fall, so the value of money would fall. 
B)  the price level would fall, so the value of money would rise. 
C)  the price level would rise, so the value of money would fall. 
D)  the price level would rise, so the value of money would rise.

Question 3

Wealth is redistributed from debtors to creditors when inflation was expected to be

Accepted Answer

A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low. 
A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low.

Question 4

Inflation is problematic if

Accepted Answer

A)  it is less than the percentage increase in nominal income. 
B)  it is less than the nominal return on saving. 
C)  it equals the growth rate of real GDP in the long run. 
D)  it distorts relative prices, causing a misallocation of resources. 
A)  it is less than the percentage increase in nominal income. 
B)  it is less than the nominal return on saving. 
C)  it equals the growth rate of real GDP in the long run. 
D)  it distorts relative prices, causing a misallocation of resources.

Question 5

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  5.25 percent 
B)  3.05 percent 
C)  2.55 percent 
D)  1.25 percent 
A)  5.25 percent 
B)  3.05 percent 
C)  2.55 percent 
D)  1.25 percent

Question 6

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 4 percent; the tax rate is 5 percent. 
B)  Inflation is 3 percent; the tax rate is 20 percent. 
C)  Inflation is 2 percent; the tax rate is 30 percent. 
D)  The after-tax real interest rate is the same for all of the above. 
A)  Inflation is 4 percent; the tax rate is 5 percent. 
B)  Inflation is 3 percent; the tax rate is 20 percent. 
C)  Inflation is 2 percent; the tax rate is 30 percent. 
D)  The after-tax real interest rate is the same for all of the above.

Question 7

Over the past 80 years, prices in the U.S. have risen on average about

Accepted Answer

A)  2 percent per year. 
B)  4 percent per year. 
C)  3.6 percent per year. 
D)  6 percent per year. 
A)  2 percent per year. 
B)  4 percent per year. 
C)  3.6 percent per year. 
D)  6 percent per year.

Question 8

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

Accepted Answer

A)  will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B)  will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C)  will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D)  will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
A)  will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B)  will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C)  will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D)  will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.

Question 9

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

Accepted Answer

nominal va

Question 10

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A)  nominal and real GDP would rise by 5 percent. 
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D)  neither nominal GDP nor real GDP would change. 
A)  nominal and real GDP would rise by 5 percent. 
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D)  neither nominal GDP nor real GDP would change.

Question 11

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Accepted Answer

A) True 
 B)False

Question 12

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 13

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 14

Most economists believe the principle of monetary neutrality is

Accepted Answer

A)  relevant to both the short and long run. 
B)  irrelevant to both the short and long run. 
C)  mostly relevant to the short run. 
D)  mostly relevant to the long run. 
A)  relevant to both the short and long run. 
B)  irrelevant to both the short and long run. 
C)  mostly relevant to the short run. 
D)  mostly relevant to the long run.

Question 15

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Accepted Answer

A)  the price level grew at about the same rate as the money supply. 
B)  the price level grew at a much faster rate than the money supply. 
C)  the price level grew at a much slower rate than the money supply. 
D)  the inflation rate and the money supply growth rate do not appear to be related. 
A)  the price level grew at about the same rate as the money supply. 
B)  the price level grew at a much faster rate than the money supply. 
C)  the price level grew at a much slower rate than the money supply. 
D)  the inflation rate and the money supply growth rate do not appear to be related.

Question 16

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Accepted Answer

debtors/bo

Question 17

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Accepted Answer

A)  the money supply must have increased, perhaps because the Fed bought bonds. 
B)  the money supply must have increased, perhaps because the Fed sold bonds. 
C)  the money supply must have decreased, perhaps because the Fed bought bonds. 
D)  the money supply must have decreased, perhaps because the Fed sold bonds. 
A)  the money supply must have increased, perhaps because the Fed bought bonds. 
B)  the money supply must have increased, perhaps because the Fed sold bonds. 
C)  the money supply must have decreased, perhaps because the Fed bought bonds. 
D)  the money supply must have decreased, perhaps because the Fed sold bonds.

Question 18

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 19

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 20

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

A decrease in the money supply creates an excess

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Wealth is redistributed from debtors to creditors when inflation was expected to be

Inflation is problematic if

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Over the past 80 years, prices in the U.S. have risen on average about

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's aftertax real rate of interest

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

The quantity equation is M x V = P x Y.

Most economists believe the principle of monetary neutrality is

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Shoeleather costs and menu costs are both costs of anticipated inflation.

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

A decrease in the money supply creates an excess

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Wealth is redistributed from debtors to creditors when inflation was expected to be

Inflation is problematic if

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Over the past 80 years, prices in the U.S. have risen on average about

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

The quantity equation is M x V = P x Y.

Most economists believe the principle of monetary neutrality is

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Shoeleather costs and menu costs are both costs of anticipated inflation.

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

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's aftertax real rate of interest

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.

Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .