Exam 17: Money Growth and Inflation

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Higher inflation

A decrease in the money supply creates an excess

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Suppose that velocity rises while the money supply stays the same. It follows that

When inflation rises people will

Suppose that monetary neutrality holds. Of the following variables, which ones do not change when the money supply increases? a. real interest rates b. inflation c. the price level d. real output e. real wages f. nominal wages

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

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

If velocity and output were nearly constant, then

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

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

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent. This difference between actual and expected inflation

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

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

Which of the following is not implied by the quantity equation?

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.

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.