Question 1

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha

Question 2

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A)  high, whether it is expected or not. 
B)  low, whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low. 
A)  high, whether it is expected or not. 
B)  low, whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low.

Question 3

Figure 30-1  
-Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)  the equilibrium value of money decreases. 
B)  the equilibrium price level decreases. 
C)  the supply of money has decreased. 
D)  the demand for goods and services will decrease. 
A)  the equilibrium value of money decreases. 
B)  the equilibrium price level decreases. 
C)  the supply of money has decreased. 
D)  the demand for goods and services will decrease.

Question 4

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 5

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Accepted Answer

The answer of You hear an economist state the following:...

Question 6

Wealth is redistributed from debtors to creditors when inflation was expected to be

Accepted Answer

A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low. 
A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low.

Question 7

The price level is determined by the supply of, and demand for, money.

Accepted Answer

A) True 
 B)False

Question 8

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 9

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who save than for those who borrow. 
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 those who are paid a fixed nominal wage. 
D)  for savers in low income tax brackets than for savers in high income tax brackets. 
A)  for those who save than for those who borrow. 
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 those who are paid a fixed nominal wage. 
D)  for savers in low income tax brackets than for savers in high income tax brackets.

Question 10

When deciding how much to save, people care most about

Accepted Answer

A)  after-tax nominal interest rates. 
B)  after-tax real interest rates. 
C)  before-tax real interest rates. 
D)  before-tax nominal interest rates. 
A)  after-tax nominal interest rates. 
B)  after-tax real interest rates. 
C)  before-tax real interest rates. 
D)  before-tax nominal interest rates.

Question 11

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts.

Question 12

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then

Accepted Answer

A)  when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. 
B)  when the money market is in equilibrium, one unit of goods and services sells for 33 cents. 
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D)  All of the above are correct. 
A)  when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. 
B)  when the money market is in equilibrium, one unit of goods and services sells for 33 cents. 
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D)  All of the above are correct.

Question 13

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 14

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Question 15

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Accepted Answer

A)  2,000. 
B)  200,000. 
C)  12,500. 
D)  32,000. 
A)  2,000. 
B)  200,000. 
C)  12,500. 
D)  32,000.

Question 16

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.

Question 17

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

Accepted Answer

A)  more than doubles. 
B)  changes but less than doubles. 
C)  doubles. 
D)  does not change 
A)  more than doubles. 
B)  changes but less than doubles. 
C)  doubles. 
D)  does not change

Question 18

The Fisher effect is crucial for understanding changes over time in

Accepted Answer

A)  the nominal interest rate. 
B)  the real interest rate. 
C)  the inflation rate. 
D)  the unemployment rate. 
A)  the nominal interest rate. 
B)  the real interest rate. 
C)  the inflation rate. 
D)  the unemployment rate.

Question 19

Identify each of the following as nominal or real variables.
a. the physical output of goods and services
b. the overall price level
c. the dollar price of apples
d. the price of apples relative to the price of oranges
e. the unemployment rate
f. the amount that shows up on your paycheck after taxes
g. the amount of goods you can purchase with the wage you get each hour
h. the taxes that you pay the government

Accepted Answer

a. real variable
b. nominal va

Question 20

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. 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 and a real loss, and you paid taxes on the nominal gain. 
D)  a nominal gain and a real loss, 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 and a real loss, and you paid taxes on the nominal gain. 
D)  a nominal gain and a real loss, and you paid no taxes on the transaction.

Exam 17: Money Growth and Inflation

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Wealth is redistributed from creditors to debtors when inflation is

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

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

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Wealth is redistributed from debtors to creditors when inflation was expected to be

The price level is determined by the supply of, and demand for, money.

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

High and unexpected inflation has a greater cost

When deciding how much to save, people care most about

Why did farmers in the late 1800s dislike deflation?

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

High and unexpected inflation has a greater cost

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

The Fisher effect is crucial for understanding changes over time in

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

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

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.