Question 1

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 2

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A)  28.00 percent 
B)  36.25 percent 
C)  43.75 percent 
D)  67.50 percent 
A)  28.00 percent 
B)  36.25 percent 
C)  43.75 percent 
D)  67.50 percent

Question 3

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

Accepted Answer

A)  Low inflation was viewed as a triumph of President Carter's economic policy. 
B)  There were long periods in the nineteenth century during which prices fell. 
C)  The U.S. public has viewed inflation rates of even 7 percent as a major economic problem. 
D)  The U.S. inflation rate has varied over time, but international data show even more variation. 
A)  Low inflation was viewed as a triumph of President Carter's economic policy. 
B)  There were long periods in the nineteenth century during which prices fell. 
C)  The U.S. public has viewed inflation rates of even 7 percent as a major economic problem. 
D)  The U.S. inflation rate has varied over time, but international data show even more variation.

Question 4

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Accepted Answer

A) True 
 B)False

Question 5

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 6

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 7

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 8

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

We must suppose that V is rela

Question 9

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Accepted Answer

A)  raised both the price level and the value of gold in Cairo. 
B)  raised the price level, but decreased the value of gold in Cairo. 
C)  lowered the price level, but increased the value of gold in Cairo. 
D)  lowered both the price level and the value of gold in Cairo. 
A)  raised both the price level and the value of gold in Cairo. 
B)  raised the price level, but decreased the value of gold in Cairo. 
C)  lowered the price level, but increased the value of gold in Cairo. 
D)  lowered both the price level and the value of gold in Cairo.

Question 10

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A)  decreases the price level by 2 percent. 
B)  decreases the price level by less than 2 percent. 
C)  increases the price level by less than 2 percent. 
D)  increases the price level by 2 percent. 
A)  decreases the price level by 2 percent. 
B)  decreases the price level by less than 2 percent. 
C)  increases the price level by less than 2 percent. 
D)  increases the price level by 2 percent.

Question 11

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False

Question 12

The costs of changing price tags and price listings are known as

Accepted Answer

A)  inflation-induced tax distortions. 
B)  relative-price variability costs. 
C)  shoeleather costs. 
D)  menu costs. 
A)  inflation-induced tax distortions. 
B)  relative-price variability costs. 
C)  shoeleather costs. 
D)  menu costs.

Question 13

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A)  high, whether it is expected or not. 
B)  low, whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low. 
A)  high, whether it is expected or not. 
B)  low, whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low.

Question 14

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

Accepted Answer

A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall. 
A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall.

Question 15

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 16

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Accepted Answer

Both the nominal and real valu

Question 17

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  2,500. 
B)  7,500. 
C)  10,000. 
D)  40,000. 
A)  2,500. 
B)  7,500. 
C)  10,000. 
D)  40,000.

Question 19

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

Accepted Answer

A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded decreases. 
D)  decreases, so the quantity of money demanded increases. 
A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded decreases. 
D)  decreases, so the quantity of money demanded increases.

Question 20

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

Accepted Answer

A)  both the price level and real GDP would rise by 5 percent. 
B)  the price level would rise by 5 percent and real GDP would be unchanged. 
C)  the price level would be unchanged and real GDP would rise by 5 percent. 
D)  both the price level and real GDP would be unchanged. 
A)  both the price level and real GDP would rise by 5 percent. 
B)  the price level would rise by 5 percent and real GDP would be unchanged. 
C)  the price level would be unchanged and real GDP would rise by 5 percent. 
D)  both the price level and real GDP would be unchanged.

Exam 22: Money Growth and Inflation

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

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

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

The United States has never had deflation.

In United States history there were long periods when most prices fell.

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

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

The costs of changing price tags and price listings are known as

Wealth is redistributed from creditors to debtors when inflation is

When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an

When inflation rises, people will desire to hold

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

The quantity theory of money can explain hyperinflations but not moderate inflation.

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

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

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

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