Exam 22: Money Growth and Inflation

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

If Y and M are constant and V doubles, the quantity equation implies that the price level

When the Consumer Price Index increases from 100 to 120

What two key assumptions does the quantity theory make concerning variables in the equation of exchange?

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

The shoeleather cost of inflation refers to

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Suppose the rate of inflation rate is two percent and the nominal interest rate is five percent. According to the Fisher Effect, an increase in the inflation rate to six percent should cause the nominal interest rate to increase from five percent to in the long run.

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Explain how inflation affects savings.

When we assume that the supply of money is a variable that the central bank controls, we

Relative-price variability

If the price level last year was 180 and this year it is 176, then

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

There was hyperinflation during the

When inflation falls, people

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?