Question 1

According to the classical dichotomy, which of the following increases when the money supply increases?

Accepted Answer

A)  the real interest rate 
B)  real GDP 
C)  the real wage 
D)  the nominal wage. 
A)  the real interest rate 
B)  real GDP 
C)  the real wage 
D)  the nominal wage.

Question 2

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Accepted Answer

A)  The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C)  The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D)  The nominal interest rate was 6 percent and the inflation rate was 1 percent. 
A)  The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C)  The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D)  The nominal interest rate was 6 percent and the inflation rate was 1 percent.

Question 3

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Accepted Answer

rise, exce

Question 4

If the price level increased from 120 to 144, then what was the inflation rate?

Accepted Answer

A)  24 percent. 
B)  25 percent. 
C)  20 percent. 
D)  17 percent. 
A)  24 percent. 
B)  25 percent. 
C)  20 percent. 
D)  17 percent.

Question 5

The inflation tax refers to

Accepted Answer

A)  the revenue a government creates by printing money. 
B)  higher inflation which requires more frequent price changes. 
C)  the idea that, other things the same, an increase in the tax rate raises the inflation rate. 
D)  taxes being indexed for inflation. 
A)  the revenue a government creates by printing money. 
B)  higher inflation which requires more frequent price changes. 
C)  the idea that, other things the same, an increase in the tax rate raises the inflation rate. 
D)  taxes being indexed for inflation.

Question 6

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

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 7

The Fisher effect says that

Accepted Answer

A)  the nominal interest rate adjusts one for one with the inflation rate. 
B)  the growth rate of the money supply is negatively related to the velocity of money. 
C)  real variables are heavily influenced by the monetary system. 
D)  All of the above are correct. 
A)  the nominal interest rate adjusts one for one with the inflation rate. 
B)  the growth rate of the money supply is negatively related to the velocity of money. 
C)  real variables are heavily influenced by the monetary system. 
D)  All of the above are correct.

Question 8

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Accepted Answer

A)  1.6 percent 
B)  10 percent 
C)  6.5 percent 
D)  1.5 percent 
A)  1.6 percent 
B)  10 percent 
C)  6.5 percent 
D)  1.5 percent

Question 9

Which of the following is correct?

Accepted Answer

A)  The classical dichotomy separates real and nominal variables. 
B)  Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C)  When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D)  All of the above are correct. 
A)  The classical dichotomy separates real and nominal variables. 
B)  Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C)  When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D)  All of the above are correct.

Question 10

The term hyperinflation refers to

Accepted Answer

A)  the spread of inflation from one country to others. 
B)  a decrease in the inflation rate. 
C)  a period of very high inflation. 
D)  inflation accompanied by a recession. 
A)  the spread of inflation from one country to others. 
B)  a decrease in the inflation rate. 
C)  a period of very high inflation. 
D)  inflation accompanied by a recession.

Question 11

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 12

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 13

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Accepted Answer

A) True 
 B)False

Question 14

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. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph. 
A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph.

Question 15

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who borrow than for those who save. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation. 
D)  All of the above are correct. 
A)  for those who borrow than for those who save. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation. 
D)  All of the above are correct.

Question 16

The costs a business incurs to change its prices are called .

Accepted Answer

The answer of The costs a business incurs to change...

Question 17

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 18

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)  decreased. Other things the same, a decrease in velocity decreases the price level. 
B)  decreased. Other things the same, a decrease in velocity increases the price level. 
C)  increased. Other things the same, an increase in velocity decreases the price level. 
D)  increased. Other things the same, an increase in velocity increases the price level. 
A)  decreased. Other things the same, a decrease in velocity decreases the price level. 
B)  decreased. Other things the same, a decrease in velocity increases the price level. 
C)  increased. Other things the same, an increase in velocity decreases the price level. 
D)  increased. Other things the same, an increase in velocity increases the price level.

Question 19

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)  spend more time looking for bargains. 
B)  spend less time looking for bargains. 
C)  hold more money. 
D)  hold less money. 
A)  spend more time looking for bargains. 
B)  spend less time looking for bargains. 
C)  hold more money. 
D)  hold less money.

Question 20

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who borrow than for those who save. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage. 
D)  for savers in high income tax brackets than for savers in low income tax brackets. 
A)  for those who borrow than for those who save. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage. 
D)  for savers in high income tax brackets than for savers in low income tax brackets.

Exam 22: Money Growth and Inflation

According to the classical dichotomy, which of the following increases when the money supply increases?

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

If the price level increased from 120 to 144, then what was the inflation rate?

The inflation tax refers to

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

The Fisher effect says that

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Which of the following is correct?

The term hyperinflation refers to

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

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. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

High and unexpected inflation has a greater cost

The costs a business incurs to change its prices are called .

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Shoeleather costs arise when higher inflation rates induce people to

High and unexpected inflation has a greater cost

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 long run an increase in the money supply causes the price level to . The price level moves in this direction because an increase in the money supply creates in the money market that causes people to spending.