Question 1

Which of the following is correct?

Accepted Answer

A)  The classical dichotomy separates real and nominal variables. 
B)  Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C)  When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D)  All of the above are correct. 
A)  The classical dichotomy separates real and nominal variables. 
B)  Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C)  When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D)  All of the above are correct.

Question 2

The supply of money increases when

Accepted Answer

A)  the value of money increases. 
B)  the interest rate increases. 
C)  the Federal Reserve purchases bonds. 
D)  velocity increases. 
A)  the value of money increases. 
B)  the interest rate increases. 
C)  the Federal Reserve purchases bonds. 
D)  velocity increases.

Question 3

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)  both the classical dichotomy and the quantity theory of money. 
B)  the classical dichotomy, but not the quantity theory of money. 
C)  the quantity theory of money, but not the classical dichotomy. 
D)  neither the classical dichotomy nor the quantity theory of money. 
A)  both the classical dichotomy and the quantity theory of money. 
B)  the classical dichotomy, but not the quantity theory of money. 
C)  the quantity theory of money, but not the classical dichotomy. 
D)  neither the classical dichotomy nor the quantity theory of money.

Question 4

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Accepted Answer

A)  Nominal and real tuition were both higher in 1975. 
B)  Nominal and real tuition were both higher in 2011. 
C)  Nominal tuition was higher in 1975, real tuition was higher in 2011. 
D)  Nominal tuition was higher in 2011, real tuition was higher in 1975. 
A)  Nominal and real tuition were both higher in 1975. 
B)  Nominal and real tuition were both higher in 2011. 
C)  Nominal tuition was higher in 1975, real tuition was higher in 2011. 
D)  Nominal tuition was higher in 2011, real tuition was higher in 1975.

Question 5

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A)  the expected real interest rate is 7 percent. 
B)  the expected real interest rate is 1 percent. 
C)  the expected real interest rate is 1.33 percent. 
D)  the expected real interest rate is 12 percent. 
A)  the expected real interest rate is 7 percent. 
B)  the expected real interest rate is 1 percent. 
C)  the expected real interest rate is 1.33 percent. 
D)  the expected real interest rate is 12 percent.

Question 6

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A)  The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B)  The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C)  The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D)  The nominal interest rate was 6 percent and the inflation rate was 7.5 percent. 
A)  The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent. 
B)  The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent. 
C)  The nominal interest rate was 6 percent and the inflation rate was -1.5 percent. 
D)  The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.

Question 7

If the price level increased from 120 to 144, then what was the inflation rate?

Accepted Answer

A)  24 percent. 
B)  25 percent. 
C)  20 percent. 
D)  17 percent. 
A)  24 percent. 
B)  25 percent. 
C)  20 percent. 
D)  17 percent.

Question 8

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage. 
B)  real output. 
C)  real interest rates. 
D)  the real wage. 
A)  the nominal wage. 
B)  real output. 
C)  real interest rates. 
D)  the real wage.

Question 9

Wealth is redistributed from debtors to creditors 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 10

The inflation tax falls mostly heavily on

Accepted Answer

A)  those who hold a lot of currency and accounts for a large share of U.S. government revenue. 
B)  those who hold a lot of currency but accounts for a small share of U.S. government revenue. 
C)  those who hold little currency and accounts for a large share of U.S. government revenue. 
D)  those who hold little currency but accounts for a small share of U.S. government revenue. 
A)  those who hold a lot of currency and accounts for a large share of U.S. government revenue. 
B)  those who hold a lot of currency but accounts for a small share of U.S. government revenue. 
C)  those who hold little currency and accounts for a large share of U.S. government revenue. 
D)  those who hold little currency but accounts for a small share of U.S. government revenue.

Question 11

Money demand depends on

Accepted Answer

A)  the price level and the interest rate. 
B)  the price level but not the interest rate. 
C)  the interest rate but not the price level. 
D)  neither the price level nor the interest rate. 
A)  the price level and the interest rate. 
B)  the price level but not the interest rate. 
C)  the interest rate but not the price level. 
D)  neither the price level nor the interest rate.

Question 12

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A)  His real and nominal salary have risen. 
B)  His real and nominal salary have fallen. 
C)  His real salary has risen and his nominal salary has fallen. 
D)  His real salary has fallen and his nominal salary has risen. 
A)  His real and nominal salary have risen. 
B)  His real and nominal salary have fallen. 
C)  His real salary has risen and his nominal salary has fallen. 
D)  His real salary has fallen and his nominal salary has risen.

Question 13

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

Accepted Answer

A)  a nominal interest rate of 5 percent and an inflation rate of 4 percent. 
B)  a nominal interest rate of 4 percent and an inflation rate of 3 percent. 
C)  a nominal interest rate of 8 percent and an inflation rate of 1 percent. 
D)  a nominal interest rate of 14 percent and an inflation rate of 2 percent. 
A)  a nominal interest rate of 5 percent and an inflation rate of 4 percent. 
B)  a nominal interest rate of 4 percent and an inflation rate of 3 percent. 
C)  a nominal interest rate of 8 percent and an inflation rate of 1 percent. 
D)  a nominal interest rate of 14 percent and an inflation rate of 2 percent.

Question 14

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)  deflation; 2 percent 
B)  deflation; 10 percent 
C)  inflation; 2 percent 
D)  inflation; 10 percent 
A)  deflation; 2 percent 
B)  deflation; 10 percent 
C)  inflation; 2 percent 
D)  inflation; 10 percent

Question 15

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

@#IMG-DLM& When the Fed sells government bonds, th

Question 16

In which of the following cases was the inflation rate 12 percent over the last year?

Accepted Answer

A)  One year ago the price index had a value of 110 and now it has a value of 120. 
B)  One year ago the price index had a value of 120 and now it has a value of 132. 
C)  One year ago the price index had a value of 134 and now it has a value of 150. 
D)  One year ago the price index had a value of 145 and now it has a value of 163. 
A)  One year ago the price index had a value of 110 and now it has a value of 120. 
B)  One year ago the price index had a value of 120 and now it has a value of 132. 
C)  One year ago the price index had a value of 134 and now it has a value of 150. 
D)  One year ago the price index had a value of 145 and now it has a value of 163.

Question 17

In which of the following cases is the after-tax real interest rate highest?

Accepted Answer

A)  inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 20%. 
B)  inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 25%. 
C)  inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 20%. 
D)  inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 25%. 
A)  inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 20%. 
B)  inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 25%. 
C)  inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 20%. 
D)  inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 25%.

Question 18

Between 1880 and 1886, prices that were

Accepted Answer

A)  lower than expected transferred wealth from creditors to debtors. 
B)  lower than expected transferred wealth from debtors to creditors. 
C)  higher than expected transferred wealth from creditors to debtors. 
D)  higher than expected transferred wealth from debtors to creditors. 
A)  lower than expected transferred wealth from creditors to debtors. 
B)  lower than expected transferred wealth from debtors to creditors. 
C)  higher than expected transferred wealth from creditors to debtors. 
D)  higher than expected transferred wealth from debtors to creditors.

Question 19

You put money in the bank. The increase in the dollar value of your savings

Accepted Answer

A)  and the change in the number of goods you can buy with your savings are both nominal variables. 
B)  and the change in the number of goods you can buy with your savings are both real variables. 
C)  is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. 
D)  is a real variable, but the change in the number of goods you buy with your savings is a nominal variable. 
A)  and the change in the number of goods you can buy with your savings are both nominal variables. 
B)  and the change in the number of goods you can buy with your savings are both real variables. 
C)  is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. 
D)  is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

Question 20

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)  increases the real interest rate and the after-tax real rate of interest. 
B)  increases the real interest rate and the after-tax real rate of interest 
C)  does not change the real interest rate but raises the after tax real rate of interest. 
D)  does not change the real interest rate but reduces the after-tax real rate of interest. 
A)  increases the real interest rate and the after-tax real rate of interest. 
B)  increases the real interest rate and the after-tax real rate of interest 
C)  does not change the real interest rate but raises the after tax real rate of interest. 
D)  does not change the real interest rate but reduces the after-tax real rate of interest.

Exam 17: Money Growth and Inflation

Which of the following is correct?

The supply of money increases when

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

If the price level increased from 120 to 144, then what was the inflation rate?

Which of the following can a country increase in the long run by increasing its money growth rate?

Wealth is redistributed from debtors to creditors when inflation is

The inflation tax falls mostly heavily on

Money demand depends on

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

In which of the following cases was the inflation rate 12 percent over the last year?

In which of the following cases is the after-tax real interest rate highest?

Between 1880 and 1886, prices that were

You put money in the bank. The increase in the dollar value of your savings

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

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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