Exam 22: Money Growth and Inflation

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold it for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after­tax gain? Hint: What's the real value of the land in current prices?)

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

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. What quantity is measured along the vertical axis?

The value of money falls as the price level

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

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

You observe people going to the bank more frequently. Other things the same this could result from

The supply of money is determined by

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

In which of the following cases is the after-tax real interest rate highest?

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. What quantity is measured along the horizontal axis?

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

When the price level falls, the number of dollars needed to buy a representative basket of goods

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then