Question 1

When inflation rises, people tend to go to the bank

Accepted Answer

A)  more often, giving rise to menu costs. 
B)  more often, giving rise to shoeleather costs. 
C)  less often, giving rise to redistribution costs. 
D)  less often, thereby lessening the severity of the inflation tax. 
A)  more often, giving rise to menu costs. 
B)  more often, giving rise to shoeleather costs. 
C)  less often, giving rise to redistribution costs. 
D)  less often, thereby lessening the severity of the inflation tax. B

Question 2

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 3 percent; the tax rate is 15 percent. 
B)  Inflation is 2 percent; the tax rate is 40 percent. 
C)  Inflation is 1 percent; the tax rate is 50 percent. 
D)  The after-tax real interest rate is the same for all of the above. 
A)  Inflation is 3 percent; the tax rate is 15 percent. 
B)  Inflation is 2 percent; the tax rate is 40 percent. 
C)  Inflation is 1 percent; the tax rate is 50 percent. 
D)  The after-tax real interest rate is the same for all of the above. C

Question 3

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

$11,000

Question 4

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

nominal, r

Question 5

Figure 30-1  
-Refer to Figure 30-1. If the current money supply is MS1, then

Accepted Answer

A)  equilibrium exists when the value of money is 2. 
B)  equilibrium exists when the equilibrium is at point D. 
C)  equilibrium exists when the value of money is 1. 
D)  there is excess demand if the value of money is 2. 
A)  equilibrium exists when the value of money is 2. 
B)  equilibrium exists when the equilibrium is at point D. 
C)  equilibrium exists when the value of money is 1. 
D)  there is excess demand if the value of money is 2.

Question 6

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Accepted Answer

A)  2,000. 
B)  200,000. 
C)  12,500. 
D)  32,000. 
A)  2,000. 
B)  200,000. 
C)  12,500. 
D)  32,000.

Question 7

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

When prices are falling, economists say that there is

Accepted Answer

A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation. 
A)  disinflation. 
B)  deflation. 
C)  a contraction. 
D)  an inverted inflation.

Question 10

If the price level increased from 120 to 130, then what was the inflation rate?

Accepted Answer

A)  1.1 percent. 
B)  7.7 percent. 
C)  10.0 percent. 
D)  8.3 percent. 
A)  1.1 percent. 
B)  7.7 percent. 
C)  10.0 percent. 
D)  8.3 percent.

Question 11

In which case below is the real interest rate the highest?

Accepted Answer

A)  the nominal interest rate = 1% and inflation = 3% 
B)  the nominal interest rate = 6% and inflation = 4% 
C)  the nominal interest rate = 2% and inflation = -1% 
D)  the nominal interest rate = 2% and inflation = 1% 
A)  the nominal interest rate = 1% and inflation = 3% 
B)  the nominal interest rate = 6% and inflation = 4% 
C)  the nominal interest rate = 2% and inflation = -1% 
D)  the nominal interest rate = 2% and inflation = 1%

Question 12

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 13

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)  nominal and real GDP would fall by 7 percent. 
B)  nominal GDP would fall by 7 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would fall by 7 percent. 
D)  neither nominal GDP nor real GDP would change. 
A)  nominal and real GDP would fall by 7 percent. 
B)  nominal GDP would fall by 7 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would fall by 7 percent. 
D)  neither nominal GDP nor real GDP would change.

Question 14

Higher inflation

Accepted Answer

A)  causes firms to change prices less frequently and makes relative prices less variable. 
B)  causes firms to change prices less frequently and makes relative prices more variable. 
C)  causes firms to change prices more frequently and makes relative prices less variable. 
D)  causes firms to change prices more frequently and makes relative prices more variable. 
A)  causes firms to change prices less frequently and makes relative prices less variable. 
B)  causes firms to change prices less frequently and makes relative prices more variable. 
C)  causes firms to change prices more frequently and makes relative prices less variable. 
D)  causes firms to change prices more frequently and makes relative prices more variable.

Question 15

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Accepted Answer

A)  Her real and nominal salary have risen. 
B)  Her real and nominal salary have fallen. 
C)  Her real salary has risen and her nominal salary has fallen. 
D)  Her real salary has fallen and her nominal salary has risen. 
A)  Her real and nominal salary have risen. 
B)  Her real and nominal salary have fallen. 
C)  Her real salary has risen and her nominal salary has fallen. 
D)  Her real salary has fallen and her nominal salary has risen.

Question 16

If a country experienced deflation, then

Accepted Answer

A)  the nominal interest rate would be greater than the real interest rate. 
B)  the real interest rate would be greater than the nominal interest rate. 
C)  the real interest rate would equal the nominal interest rate. 
D)  nominal GDP would be greater than the money supply. 
A)  the nominal interest rate would be greater than the real interest rate. 
B)  the real interest rate would be greater than the nominal interest rate. 
C)  the real interest rate would equal the nominal interest rate. 
D)  nominal GDP would be greater than the money supply.

Question 17

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  demanded increases. 
B)  demanded decreases. 
C)  supplied increases. 
D)  supplied decreases. 
A)  demanded increases. 
B)  demanded decreases. 
C)  supplied increases. 
D)  supplied decreases.

Question 20

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Accepted Answer

A)  60 percent. 
B)  80 percent. 
C)  220 percent. 
D)  24,000 percent. 
A)  60 percent. 
B)  80 percent. 
C)  220 percent. 
D)  24,000 percent.

Exam 22: Money Growth and Inflation

When inflation rises, people tend to go to the bank

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Figure 30-1 -Refer to Figure 30-1. If the current money supply is MS1, then

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

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

When prices are falling, economists say that there is

If the price level increased from 120 to 130, then what was the inflation rate?

In which case below is the real interest rate the highest?

The money demand curve shifts to the left when the Fed buys government bonds.

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Higher inflation

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

If a country experienced deflation, then

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

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.

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

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.