Question 1

The value of money rises as the price level

Accepted Answer

A)  rises, because the number of dollars needed to buy a representative basket of goods rises. 
B)  rises, because the number of dollars needed to buy a representative basket of goods falls. 
C)  falls, because the number of dollars needed to buy a representative basket of goods rises. 
D)  falls, because the number of dollars needed to buy a representative basket of goods falls. 
A)  rises, because the number of dollars needed to buy a representative basket of goods rises. 
B)  rises, because the number of dollars needed to buy a representative basket of goods falls. 
C)  falls, because the number of dollars needed to buy a representative basket of goods rises. 
D)  falls, because the number of dollars needed to buy a representative basket of goods falls.

Question 2

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Question 3

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 4

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in

Question 5

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)  deflation; 2 percent 
B)  deflation; 10 percent 
C)  inflation; 2 percent 
D)  inflation; 10 percent 
A)  deflation; 2 percent 
B)  deflation; 10 percent 
C)  inflation; 2 percent 
D)  inflation; 10 percent

Question 6

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

Accepted Answer

A)  Prices rose at an average annual rate of about 3.6 percent over the last 80 years. 
B)  There was about a 17-fold increase in the price level over the last 80 years. 
C)  Inflation in the 1970s was below the average over the last 80 years. 
D)  The United States has experienced periods of deflation. 
A)  Prices rose at an average annual rate of about 3.6 percent over the last 80 years. 
B)  There was about a 17-fold increase in the price level over the last 80 years. 
C)  Inflation in the 1970s was below the average over the last 80 years. 
D)  The United States has experienced periods of deflation.

Question 7

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Accepted Answer

The answer of In the early 1920s U.S. consumer prices...

Question 8

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Accepted Answer

A)  your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. 
B)  your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. 
C)  your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. 
D)  your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased. 
A)  your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. 
B)  your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. 
C)  your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. 
D)  your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

Question 9

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A)  the inflation rate and real interest rates. 
B)  the inflation rate, but not real interest rates. 
C)  real interest rates, but not the inflation rate. 
D)  neither the inflation rate nor real interest rates. 
A)  the inflation rate and real interest rates. 
B)  the inflation rate, but not real interest rates. 
C)  real interest rates, but not the inflation rate. 
D)  neither the inflation rate nor real interest rates.

Question 10

If the CPI rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases, and so the value of money rises. 
B)  increases, and so the value of money falls. 
C)  decreases, and so the value of money rises. 
D)  decreases, and so the value of money falls 
A)  increases, and so the value of money rises. 
B)  increases, and so the value of money falls. 
C)  decreases, and so the value of money rises. 
D)  decreases, and so the value of money falls

Question 11

The theory that most economists rely on to explain inflation is called the .

Accepted Answer

The answer of The theory that most economists rely on...

Question 12

When inflation rises, firms make

Accepted Answer

A)  more frequent price changes. This raises their menu costs. 
B)  more frequent price changes. This reduces their menu costs. 
C)  less frequent price changes. This raises their menu costs. 
D)  less frequent price changes. This reduces their menu costs. 
A)  more frequent price changes. This raises their menu costs. 
B)  more frequent price changes. This reduces their menu costs. 
C)  less frequent price changes. This raises their menu costs. 
D)  less frequent price changes. This reduces their menu costs.

Question 13

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Accepted Answer

A)  .031-.20) 
B)  .041 -.20) 
C)  .041 - .20) - .01 
D)  None of the above is correct. 
A)  .031-.20) 
B)  .041 -.20) 
C)  .041 - .20) - .01 
D)  None of the above is correct.

Question 14

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Accepted Answer

The answer of You hear an economist state the following:...

Question 15

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th

Question 16

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)  excess demand for money that will result in an increase in spending. 
B)  excess demand for money that will result in a decrease in spending. 
C)  excess supply of money that will result in an increase in spending. 
D)  excess supply of money that will result in a decrease in spending. 
A)  excess demand for money that will result in an increase in spending. 
B)  excess demand for money that will result in a decrease in spending. 
C)  excess supply of money that will result in an increase in spending. 
D)  excess supply of money that will result in a decrease in spending.

Question 17

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Accepted Answer

The answer of An increase in the price level means...

Question 18

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

Accepted Answer

A)  money demand slopes upward and money supply is horizontal. 
B)  money demand slopes downward and money supply is horizontal. 
C)  money demand slopes upward and money supply is vertical. 
D)  money demand slopes downward and money supply is vertical. 
A)  money demand slopes upward and money supply is horizontal. 
B)  money demand slopes downward and money supply is horizontal. 
C)  money demand slopes upward and money supply is vertical. 
D)  money demand slopes downward and money supply is vertical.

Question 19

The price level is a

Accepted Answer

A)  relative variable. 
B)  dichotomous variable 
C)  real variable. 
D)  nominal variable. 
A)  relative variable. 
B)  dichotomous variable 
C)  real variable. 
D)  nominal variable.

Question 20

Monetary neutrality means that a change in the money supply

Accepted Answer

A)  does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run. 
B)  does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. 
C)  does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run. 
D)  does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. 
A)  does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run. 
B)  does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. 
C)  does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run. 
D)  does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.

Exam 22: Money Growth and Inflation

The value of money rises as the price level

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

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

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

If the CPI rises, the number of dollars needed to buy a representative basket of goods

The theory that most economists rely on to explain inflation is called the .

When inflation rises, firms make

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

List and define any two of the costs of high inflation.

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

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

The price level is a

Monetary neutrality means that a change in the money supply

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

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

An increase in the price level means that a dollar buys goods and services so the value of a dollar .