Question 1

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Accepted Answer

A)  8 percent 
B)  15 percent 
C)  2 percent 
D)  1.7 percent 
A)  8 percent 
B)  15 percent 
C)  2 percent 
D)  1.7 percent

Question 2

The price of a Honda Accord

Accepted Answer

A)  and the price of a Honda Accord divided by the price of a Honda Civic are both real variables. 
B)  and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables. 
C)  is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable. 
D)  is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable. 
A)  and the price of a Honda Accord divided by the price of a Honda Civic are both real variables. 
B)  and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables. 
C)  is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable. 
D)  is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

Question 3

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 4

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 5

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch

Question 6

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

Accepted Answer

A)  both the nominal and the real interest rate fall. 
B)  neither the nominal nor the real interest rate fall. 
C)  the nominal interest rate falls, but the real interest rate does not. 
D)  the real interest rate falls, but the nominal interest rate does not. 
A)  both the nominal and the real interest rate fall. 
B)  neither the nominal nor the real interest rate fall. 
C)  the nominal interest rate falls, but the real interest rate does not. 
D)  the real interest rate falls, but the nominal interest rate does not.

Question 7

Figure 30-1  
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise. 
B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall. 
C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise. 
D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall. 
A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise. 
B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall. 
C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise. 
D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall.

Question 8

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A)  nominal and real GDP would rise by 5 percent. 
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D)  neither nominal GDP nor real GDP would change. 
A)  nominal and real GDP would rise by 5 percent. 
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent. 
D)  neither nominal GDP nor real GDP would change.

Question 9

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A)  both a nominal gain and a real gain. 
B)  a nominal gain and a real loss. 
C)  a nominal loss and a real gain. 
D)  both a nominal loss and a real loss. 
A)  both a nominal gain and a real gain. 
B)  a nominal gain and a real loss. 
C)  a nominal loss and a real gain. 
D)  both a nominal loss and a real loss.

Question 10

Inflation is problematic if

Accepted Answer

A)  it is less than the percentage increase in nominal income. 
B)  it is less than the nominal return on saving. 
C)  it equals the growth rate of real GDP in the long run. 
D)  it distorts relative prices, causing a misallocation of resources. 
A)  it is less than the percentage increase in nominal income. 
B)  it is less than the nominal return on saving. 
C)  it equals the growth rate of real GDP in the long run. 
D)  it distorts relative prices, causing a misallocation of resources.

Question 11

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 12

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Accepted Answer

A)  both interest income and capital gains. 
B)  interest income but not capital gains. 
C)  capital gains but not interest income. 
D)  neither interest income nor capital gains. 
A)  both interest income and capital gains. 
B)  interest income but not capital gains. 
C)  capital gains but not interest income. 
D)  neither interest income nor capital gains.

Question 13

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Accepted Answer

A) True 
 B)False

Question 14

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 15

Most economists believe that monetary neutrality provides

Accepted Answer

A)  a good description of both the long run and the short run. 
B)  a good description of neither the long run nor the short run. 
C)  a good description of the short run, but not the long run. 
D)  a good description of the long run, but not the short run. 
A)  a good description of both the long run and the short run. 
B)  a good description of neither the long run nor the short run. 
C)  a good description of the short run, but not the long run. 
D)  a good description of the long run, but not the short run.

Question 16

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

Accepted Answer

A)  the price level 
B)  real GDP 
C)  nominal interest rates 
D)  All of the above are correct. 
A)  the price level 
B)  real GDP 
C)  nominal interest rates 
D)  All of the above are correct.

Question 17

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Accepted Answer

A)  Her real and nominal salary have risen. 
B)  Her real and nominal salary have fallen. 
C)  Her real salary has risen and her nominal salary has fallen. 
D)  Her real salary has fallen and her nominal salary has risen. 
A)  Her real and nominal salary have risen. 
B)  Her real and nominal salary have fallen. 
C)  Her real salary has risen and her nominal salary has fallen. 
D)  Her real salary has fallen and her nominal salary has risen.

Question 18

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Accepted Answer

A)  the supply of money decreases and the value of money rises. 
B)  the supply of money increases and the value of money falls. 
C)  the demand for money increases and the value of money rises. 
D)  the demand for money decreases and the value of money falls. 
A)  the supply of money decreases and the value of money rises. 
B)  the supply of money increases and the value of money falls. 
C)  the demand for money increases and the value of money rises. 
D)  the demand for money decreases and the value of money falls.

Question 19

When inflation rises, people

Accepted Answer

A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes. 
A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes.

Question 20

As the Consumer Price Index increases, the value of money

Accepted Answer

A)  falls, so people hold more money to buy the goods and services they want. 
B)  falls, so people hold less money to buy the goods and services they want. 
C)  rises, so people hold more money to buy the goods and services they want. 
D)  rises, so people hold less money to buy the goods and services they want. 
A)  falls, so people hold more money to buy the goods and services they want. 
B)  falls, so people hold less money to buy the goods and services they want. 
C)  rises, so people hold more money to buy the goods and services they want. 
D)  rises, so people hold less money to buy the goods and services they want.

Exam 17: Money Growth and Inflation

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

The price of a Honda Accord

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

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.

What are menu costs and why does high inflation increase menu costs?

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

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Inflation is problematic if

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?

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

The source of all four classic hyperinflations was high rates of money growth.

Most economists believe that monetary neutrality provides

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

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

When inflation rises, people

As the Consumer Price Index increases, the value of money

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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