Question 1

Money demand refers to

Accepted Answer

A)  the total quantity of financial assets that people want to hold. 
B)  how much income people want to earn per year. 
C)  how much wealth people want to hold in liquid form. 
D)  how much currency the Federal Reserve decides to print. 
A)  the total quantity of financial assets that people want to hold. 
B)  how much income people want to earn per year. 
C)  how much wealth people want to hold in liquid form. 
D)  how much currency the Federal Reserve decides to print.

Question 2

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A)  upward-sloping. 
B)  downward-sloping. 
C)  horizontal. 
D)  vertical. 
A)  upward-sloping. 
B)  downward-sloping. 
C)  horizontal. 
D)  vertical.

Question 3

Serena purchased 10 shares of GLC, Inc. stock for $200 per share; one year later she sold the 10 shares for $220 a share. Over the year, the price level increased from 135.0 to 143.1. The tax rate on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Serena pay on her gain?

Accepted Answer

A)  $90 
B)  $95 
C)  $100 
D)  None of the above is correct. 
A)  $90 
B)  $95 
C)  $100 
D)  None of the above is correct.

Question 4

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)  7 percent 
B)  2.5 percent 
C)  10 percent 
D)  3 percent 
A)  7 percent 
B)  2.5 percent 
C)  10 percent 
D)  3 percent

Question 5

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 6

In order to maintain stable prices, a central bank must

Accepted Answer

A)  maintain low interest rates. 
B)  keep unemployment low. 
C)  tightly control the money supply. 
D)  sell indexed bonds. 
A)  maintain low interest rates. 
B)  keep unemployment low. 
C)  tightly control the money supply. 
D)  sell indexed bonds.

Question 7

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t

Question 8

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)  The dollar amount you pay is a nominal value. The number of goods you give up is a real value. 
B)  The dollar amount you pay is a real value. The number of goods you give up is a nominal value. 
C)  Both the dollar amount you pay and the goods you give up are nominal values. 
D)  Both the dollar amount you pay and the goods you give up are real values. 
A)  The dollar amount you pay is a nominal value. The number of goods you give up is a real value. 
B)  The dollar amount you pay is a real value. The number of goods you give up is a nominal value. 
C)  Both the dollar amount you pay and the goods you give up are nominal values. 
D)  Both the dollar amount you pay and the goods you give up are real values.

Question 9

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Accepted Answer

A)  decrease that benefited creditors at the expense of debtors. 
B)  decrease that benefited debtors at the expense of creditors. 
C)  increase that benefited creditors at the expense of debtors. 
D)  increase that benefited debtors at the expense of creditors. 
A)  decrease that benefited creditors at the expense of debtors. 
B)  decrease that benefited debtors at the expense of creditors. 
C)  increase that benefited creditors at the expense of debtors. 
D)  increase that benefited debtors at the expense of creditors.

Question 10

If the Fed increases the money supply, then 1/P

Accepted Answer

A)  falls, so the value of money falls. 
B)  falls, so the value of money rises. 
C)  rises, so the value of money falls. 
D)  rises, so the value of money rises. 
A)  falls, so the value of money falls. 
B)  falls, so the value of money rises. 
C)  rises, so the value of money falls. 
D)  rises, so the value of money rises.

Question 11

If monetary neutrality holds, then an increase in the money supply

Accepted Answer

A)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. 
B)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. 
C)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. 
D)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run. 
A)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. 
B)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. 
C)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. 
D)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

Question 12

Figure 30-1  
-Refer to Figure 30-1. If the current money supply is MS1, then

Accepted Answer

A)  equilibrium exists when the value of money is 2. 
B)  equilibrium exists when the equilibrium is at point D. 
C)  equilibrium exists when the value of money is 1. 
D)  there is excess demand if the value of money is 2. 
A)  equilibrium exists when the value of money is 2. 
B)  equilibrium exists when the equilibrium is at point D. 
C)  equilibrium exists when the value of money is 1. 
D)  there is excess demand if the value of money is 2.

Question 13

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. 
B)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
C)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
A)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. 
B)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
C)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 14

Economists agree that

Accepted Answer

A)  neither high inflation nor moderate inflation is very costly. 
B)  both high and moderate inflation are quite costly. 
C)  high inflation is costly, but they disagree about the costs of moderate inflation. 
D)  moderate inflation is as costly as high inflation. 
A)  neither high inflation nor moderate inflation is very costly. 
B)  both high and moderate inflation are quite costly. 
C)  high inflation is costly, but they disagree about the costs of moderate inflation. 
D)  moderate inflation is as costly as high inflation.

Question 15

When inflation rises, firms make

Accepted Answer

A)  more frequent price changes. This raises their menu costs. 
B)  more frequent price changes. This reduces their menu costs. 
C)  less frequent price changes. This raises their menu costs. 
D)  less frequent price changes. This reduces their menu costs. 
A)  more frequent price changes. This raises their menu costs. 
B)  more frequent price changes. This reduces their menu costs. 
C)  less frequent price changes. This raises their menu costs. 
D)  less frequent price changes. This reduces their menu costs.

Question 16

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Accepted Answer

The answer of The idea that firms incur actual costs...

Question 17

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Accepted Answer

A)  both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B)  both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C)  a nominal gain, but no real gain, and you paid taxes on the nominal gain. 
D)  a nominal gain, but no real gain, and you paid no taxes on the transaction. 
A)  both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B)  both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C)  a nominal gain, but no real gain, and you paid taxes on the nominal gain. 
D)  a nominal gain, but no real gain, and you paid no taxes on the transaction.

Question 18

Economic variables whose values are measured in goods are called

Accepted Answer

A)  dichotomous variables. 
B)  nominal variables. 
C)  classical variables. 
D)  real variables. 
A)  dichotomous variables. 
B)  nominal variables. 
C)  classical variables. 
D)  real variables.

Question 19

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Accepted Answer

A)  and a price index are both real variables. 
B)  and a price index are both nominal variables. 
C)  are real variables, and a price index is a nominal variable. 
D)  are nominal variables, and a price index is a real variable 
A)  and a price index are both real variables. 
B)  and a price index are both nominal variables. 
C)  are real variables, and a price index is a nominal variable. 
D)  are nominal variables, and a price index is a real variable

Question 20

Inflation is costly only if it is unanticipated.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

Money demand refers to

With the value of money on the vertical axis, the money supply curve is

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

In order to maintain stable prices, a central bank must

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

If the Fed increases the money supply, then 1/P

If monetary neutrality holds, then an increase in the money supply

Figure 30-1 -Refer to Figure 30-1. If the current money supply is MS1, then

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Economists agree that

When inflation rises, firms make

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Economic variables whose values are measured in goods are called

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Inflation is costly only if it is unanticipated.

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

Filters

The idea that firms incur actual costs when they change prices is known as _. Firms in countries with lower inflation rates will change price _ frequently compared to those countries where inflation is higher.