Question 1

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Accepted Answer

A)  and a price index are both real variables. 
B)  and a price index are both nominal variables. 
C)  are real variables, and a price index is a nominal variable. 
D)  are nominal variables, and a price index is a real variable 
A)  and a price index are both real variables. 
B)  and a price index are both nominal variables. 
C)  are real variables, and a price index is a nominal variable. 
D)  are nominal variables, and a price index is a real variable

Question 2

Over the past 80 years, the overall price level in the U.S. has experienced a(n)

Accepted Answer

A)  4-fold increase. 
B)  10-fold increase. 
C)  13-fold increase. 
D)  17-fold increase. 
A)  4-fold increase. 
B)  10-fold increase. 
C)  13-fold increase. 
D)  17-fold increase.

Question 3

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Accepted Answer

A)  Jane's nominal income and real income decreased this year. 
B)  Jane's nominal income decreased this year, but her real income increased. 
C)  Jane's nominal income and real income increased this year. 
D)  Jane's nominal income increased this year, but her real income decreased. 
A)  Jane's nominal income and real income decreased this year. 
B)  Jane's nominal income decreased this year, but her real income increased. 
C)  Jane's nominal income and real income increased this year. 
D)  Jane's nominal income increased this year, but her real income decreased.

Question 4

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Accepted Answer

A)  40 percent. 
B)  33.3 percent. 
C)  25 percent. 
D)  50 percent. 
A)  40 percent. 
B)  33.3 percent. 
C)  25 percent. 
D)  50 percent.

Question 5

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A)  increases the price level and increases the value of money. 
B)  increases the price level and decreases the value of money. 
C)  decreases the price level and increases the value of money. 
D)  decreases the price level and decreases the value of money. 
A)  increases the price level and increases the value of money. 
B)  increases the price level and decreases the value of money. 
C)  decreases the price level and increases the value of money. 
D)  decreases the price level and decreases the value of money.

Question 6

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  Inflation is 2.5 percent; the tax rate is 25 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 2.5 percent; the tax rate is 25 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 8

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A)  9 percent inflation in the United States. 
B)  3.6 percent inflation in Russia. 
C)  59 percent inflation in Venezuela. 
D)  9.3 percent inflation in India. 
A)  9 percent inflation in the United States. 
B)  3.6 percent inflation in Russia. 
C)  59 percent inflation in Venezuela. 
D)  9.3 percent inflation in India.

Question 9

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Accepted Answer

A)  higher than she had expected, and the real value of the loan is higher than she had expected. 
B)  higher than she had expected, and the real value of the loan is lower than she had expected. 
C)  lower than she had expected, and the real value of the loan is higher than she had expected. 
D)  lower then she had expected, and the real value of the loan is lower than she had expected. 
A)  higher than she had expected, and the real value of the loan is higher than she had expected. 
B)  higher than she had expected, and the real value of the loan is lower than she had expected. 
C)  lower than she had expected, and the real value of the loan is higher than she had expected. 
D)  lower then she had expected, and the real value of the loan is lower than she had expected.

Question 10

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage. 
B)  real output. 
C)  real interest rates. 
D)  the real wage. 
A)  the nominal wage. 
B)  real output. 
C)  real interest rates. 
D)  the real wage.

Question 11

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A)  Increases in the price level can be created by increases in money demand. 
B)  Nominal incomes tend to rise at the same time that the price level is rising. 
C)  As the price level rises, the value of a dollar falls. 
D)  Inflation only changes nominal variables. 
A)  Increases in the price level can be created by increases in money demand. 
B)  Nominal incomes tend to rise at the same time that the price level is rising. 
C)  As the price level rises, the value of a dollar falls. 
D)  Inflation only changes nominal variables.

Question 12

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 13

When deflation exists,

Accepted Answer

A)  the real interest rate is less than the nominal interest rate. 
B)  the real interest rate is greater than the nominal interest rate. 
C)  the real interest rate and inflation are less than the nominal interest rate. 
D)  prices rise. 
A)  the real interest rate is less than the nominal interest rate. 
B)  the real interest rate is greater than the nominal interest rate. 
C)  the real interest rate and inflation are less than the nominal interest rate. 
D)  prices rise.

Question 14

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 15

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A)  is 1.5 times its old value. 
B)  is 3 times its old value. 
C)  is 6 times its old value. 
D)  is the same as its old value. 
A)  is 1.5 times its old value. 
B)  is 3 times its old value. 
C)  is 6 times its old value. 
D)  is the same as its old value.

Question 16

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

@#IMG-DLM& When the Fed sells government bonds, th

Question 18

Interest rates adjusted for the effects of inflation

Accepted Answer

A)  and inflation are nominal variables. 
B)  and inflation are real variables. 
C)  are real variables; inflation is a nominal variable. 
D)  are nominal variables; inflation is a real variable. 
A)  and inflation are nominal variables. 
B)  and inflation are real variables. 
C)  are real variables; inflation is a nominal variable. 
D)  are nominal variables; inflation is a real variable.

Question 19

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci

Question 20

When inflation rises, the nominal interest rate

Accepted Answer

A)  rises, and people desire to hold more money. 
B)  rises, and people desire to hold less money. 
C)  falls, and people desire to hold more money. 
D)  falls, and people desire to hold less money 
A)  rises, and people desire to hold more money. 
B)  rises, and people desire to hold less money. 
C)  falls, and people desire to hold more money. 
D)  falls, and people desire to hold less money

Exam 22: Money Growth and Inflation

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Over the past 80 years, the overall price level in the U.S. has experienced a(n)

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

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

Which country is correctly matched with its 2009 inflation rate?

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Which of the following can a country increase in the long run by increasing its money growth rate?

Which of the following helps to explain why the inflation fallacy is a fallacy?

According to the classical dichotomy, what changes nominal variables? What changes real variables?

When deflation exists,

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Interest rates adjusted for the effects of inflation

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

When inflation rises, the nominal interest rate

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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