Question 1

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)  inflation and nominal interest rates, but does not change real interest rates. 
B)  inflation, nominal interest rates, and real interest rates. 
C)  inflation and real interest rates, but does not change nominal interest rates. 
D)  nominal interest rates and real interest rates, but does not change inflation. 
A)  inflation and nominal interest rates, but does not change real interest rates. 
B)  inflation, nominal interest rates, and real interest rates. 
C)  inflation and real interest rates, but does not change nominal interest rates. 
D)  nominal interest rates and real interest rates, but does not change inflation.

Question 2

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

Accepted Answer

The answer of One benefit of low inflation is that...

Question 3

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Accepted Answer

A)  6.75. 
B)  3.00. 
C)  1.33. 
D)  1.50. 
A)  6.75. 
B)  3.00. 
C)  1.33. 
D)  1.50.

Question 4

Higher inflation makes relative prices

Accepted Answer

A)  more variable, making it more likely that resources will be allocated to their best use. 
B)  more variable, making it less likely that resources will be allocated to their best use. 
C)  less variable, making it more likely that resources will be allocated to their best use. 
D)  less variable, making it less likely that resources will be allocated to their best use. 
A)  more variable, making it more likely that resources will be allocated to their best use. 
B)  more variable, making it less likely that resources will be allocated to their best use. 
C)  less variable, making it more likely that resources will be allocated to their best use. 
D)  less variable, making it less likely that resources will be allocated to their best use.

Question 5

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A)  are positively related, which is consistent with the quantity theory of money. 
B)  are positively related, which is not consistent with the quantity theory of money. 
C)  are not related in a discernible fashion, which is consistent with the quantity theory of money. 
D)  are not related in a discernible fashion, which is not consistent with the quantity theory of money. 
A)  are positively related, which is consistent with the quantity theory of money. 
B)  are positively related, which is not consistent with the quantity theory of money. 
C)  are not related in a discernible fashion, which is consistent with the quantity theory of money. 
D)  are not related in a discernible fashion, which is not consistent with the quantity theory of money.

Question 6

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

Accepted Answer

A)  upward, because at higher prices people want to hold more money. 
B)  downward, because at higher prices people want to hold more money. 
C)  downward, because at higher price people want to hold less money. 
D)  upward, because at higher prices people want to hold less money. 
A)  upward, because at higher prices people want to hold more money. 
B)  downward, because at higher prices people want to hold more money. 
C)  downward, because at higher price people want to hold less money. 
D)  upward, because at higher prices people want to hold less money.

Question 7

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?

Accepted Answer

A)  2.2 percent 
B)  2.7 percent 
C)  11.7 percent 
D)  7.7 percent 
A)  2.2 percent 
B)  2.7 percent 
C)  11.7 percent 
D)  7.7 percent

Question 8

Printing money to finance government expenditures

Accepted Answer

A)  causes the value of money to rise. 
B)  imposes a tax on everyone who holds money. 
C)  is the principal method by which the U.S. government finances its expenditures. 
D)  causes prices to fall. 
A)  causes the value of money to rise. 
B)  imposes a tax on everyone who holds money. 
C)  is the principal method by which the U.S. government finances its expenditures. 
D)  causes prices to fall.

Question 9

If there is inflation, then a firm that has kept its price fixed for some time will have a

Accepted Answer

A)  high relative price. Relative-price variability rises as the inflation rate rises. 
B)  high relative price. Relative-price variability falls as the inflation rate rises. 
C)  low relative price. Relative-price variability rises as the inflation rate rises. 
D)  low relative price. Relative-price variability falls as the inflation rate rises. 
A)  high relative price. Relative-price variability rises as the inflation rate rises. 
B)  high relative price. Relative-price variability falls as the inflation rate rises. 
C)  low relative price. Relative-price variability rises as the inflation rate rises. 
D)  low relative price. Relative-price variability falls as the inflation rate rises.

Question 10

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)  the value of money. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  the money supply. 
A)  the value of money. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  the money supply.

Question 11

The idea of menu costs suggests that

Accepted Answer

A)  firms alter prices less frequently as inflation increases. 
B)  firms alter prices more frequently as inflation increases. 
C)  firms always alter prices when costs increase. 
D)  firms alter prices as interest rates rise. 
A)  firms alter prices less frequently as inflation increases. 
B)  firms alter prices more frequently as inflation increases. 
C)  firms always alter prices when costs increase. 
D)  firms alter prices as interest rates rise.

Question 12

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Accepted Answer

The nominal interest

Question 13

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Accepted Answer

A) True 
 B)False

Question 14

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 15

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A)  the expected real interest rate is 7 percent. 
B)  the expected real interest rate is 1 percent. 
C)  the expected real interest rate is 1.33 percent. 
D)  the expected real interest rate is 12 percent. 
A)  the expected real interest rate is 7 percent. 
B)  the expected real interest rate is 1 percent. 
C)  the expected real interest rate is 1.33 percent. 
D)  the expected real interest rate is 12 percent.

Question 16

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Accepted Answer

A)  excess demand for money which causes the price level to rise. 
B)  excess demand for money which causes the price level to fall. 
C)  excess supply of money which causes the price level to rise. 
D)  excess supply of money which causes the price level to fall. 
A)  excess demand for money which causes the price level to rise. 
B)  excess demand for money which causes the price level to fall. 
C)  excess supply of money which causes the price level to rise. 
D)  excess supply of money which causes the price level to fall.

Question 17

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 18

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)  dichotomous variables. 
B)  nominal variables. 
C)  classical variables. 
D)  real variables. 
A)  dichotomous variables. 
B)  nominal variables. 
C)  classical variables. 
D)  real variables.

Question 19

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Question 20

When deciding how much to save, people care most about

Accepted Answer

A)  after-tax nominal interest rates. 
B)  after-tax real interest rates. 
C)  before-tax real interest rates. 
D)  before-tax nominal interest rates. 
A)  after-tax nominal interest rates. 
B)  after-tax real interest rates. 
C)  before-tax real interest rates. 
D)  before-tax nominal interest rates.

Exam 22: Money Growth and Inflation

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

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

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Higher inflation makes relative prices

The evidence from hyperinflations indicates that money growth and inflation

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

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?

Printing money to finance government expenditures

If there is inflation, then a firm that has kept its price fixed for some time will have a

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

The idea of menu costs suggests that

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

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

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

An excess supply of money is eliminated by a falling price level

Economic variables whose values are measured in monetary units are called

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

When deciding how much to save, people care most about

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

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