Question 1

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)  decreased. Other things the same, a decrease in velocity decreases the price level. 
B)  decreased. Other things the same, a decrease in velocity increases the price level. 
C)  increased. Other things the same, an increase in velocity decreases the price level. 
D)  increased. Other things the same, an increase in velocity increases the price level. 
A)  decreased. Other things the same, a decrease in velocity decreases the price level. 
B)  decreased. Other things the same, a decrease in velocity increases the price level. 
C)  increased. Other things the same, an increase in velocity decreases the price level. 
D)  increased. Other things the same, an increase in velocity increases the price level.

Question 2

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 3

If the value of a dollar falls, then the quantity of money demanded

Accepted Answer

A)  rises, meaning people want to hold more of their wealth in a liquid form. 
B)  rises, meaning people desire to work more so their income rises. 
C)  falls, meaning people want to hold less of their wealth in a liquid form. 
D)  falls, meaning people want to work less so their income falls. 
A)  rises, meaning people want to hold more of their wealth in a liquid form. 
B)  rises, meaning people desire to work more so their income rises. 
C)  falls, meaning people want to hold less of their wealth in a liquid form. 
D)  falls, meaning people want to work less so their income falls.

Question 4

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 5

In the U.S., people are required to pay taxes on

Accepted Answer

A)  nominal interest earnings, irrespective of their real interest earnings. 
B)  real interest earnings, irrespective of their nominal interest earnings. 
C)  real capital gains, irrespective of their nominal capital gains. 
D)  All of the above are correct. 
A)  nominal interest earnings, irrespective of their real interest earnings. 
B)  real interest earnings, irrespective of their nominal interest earnings. 
C)  real capital gains, irrespective of their nominal capital gains. 
D)  All of the above are correct.

Question 6

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. At the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)  -33 percent 
B)  17 percent 
C)  50 percent 
D)  67 percent 
A)  -33 percent 
B)  17 percent 
C)  50 percent 
D)  67 percent

Question 7

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  an increase in the value of money 
B)  a decrease in the price level 
C)  an open-market purchase of bonds by the Federal Reserve 
D)  None of the above is correct. 
A)  an increase in the value of money 
B)  a decrease in the price level 
C)  an open-market purchase of bonds by the Federal Reserve 
D)  None of the above is correct.

Question 8

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Accepted Answer

A)  $50 
B)  $75 
C)  $100 
D)  $200 
A)  $50 
B)  $75 
C)  $100 
D)  $200

Question 9

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Accepted Answer

hyperinfla

Question 10

If the price level increased from 200 to 250, then what was the inflation rate?

Accepted Answer

A)  50 percent 
B)  25 percent 
C)  20 percent 
D)  None of the above is correct. 
A)  50 percent 
B)  25 percent 
C)  20 percent 
D)  None of the above is correct.

Question 11

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Accepted Answer

A)  velocity concept. 
B)  Fisher effect. 
C)  classical dichotomy. 
D)  Mankiw effect. 
A)  velocity concept. 
B)  Fisher effect. 
C)  classical dichotomy. 
D)  Mankiw effect.

Question 12

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  3.6 percent. 
B)  2.4 percent. 
C)  2.0 percent. 
D)  4.4 percent. 
A)  3.6 percent. 
B)  2.4 percent. 
C)  2.0 percent. 
D)  4.4 percent.

Question 13

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Accepted Answer

A)  1.6 percent 
B)  10 percent 
C)  6.5 percent 
D)  1.5 percent 
A)  1.6 percent 
B)  10 percent 
C)  6.5 percent 
D)  1.5 percent

Question 14

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

Accepted Answer

The after tax nominal interest

Question 15

A decrease in the overall price level or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Accepted Answer

deflation,

Question 16

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

Accepted Answer

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

Question 17

In the U.S., taxes on capital gains are computed using

Accepted Answer

A)  nominal gains. This is one way by which higher inflation discourages saving. 
B)  nominal gains. This is one way by which higher inflation encourages saving. 
C)  real gains. This is one way by which higher inflation discourages saving. 
D)  real gains. This is one way by which higher inflation encourages saving. 
A)  nominal gains. This is one way by which higher inflation discourages saving. 
B)  nominal gains. This is one way by which higher inflation encourages saving. 
C)  real gains. This is one way by which higher inflation discourages saving. 
D)  real gains. This is one way by which higher inflation encourages saving.

Question 18

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Accepted Answer

A)  6.75. 
B)  3.00. 
C)  1.33. 
D)  1.50. 
A)  6.75. 
B)  3.00. 
C)  1.33. 
D)  1.50.

Question 19

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A)  The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C)  The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D)  The nominal interest rate was 10 percent and the inflation rate was 4 percent. 
A)  The nominal interest rate was 10 percent and the inflation rate was 6 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 2 percent. 
C)  The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D)  The nominal interest rate was 10 percent and the inflation rate was 4 percent.

Question 20

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

Accepted Answer

The answer of The nominal interest rate is eight percent...

Exam 17: Money Growth and Inflation

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

According to the classical dichotomy, what changes nominal variables? What changes real variables?

If the value of a dollar falls, then the quantity of money demanded

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

In the U.S., people are required to pay taxes on

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

If the price level increased from 200 to 250, then what was the inflation rate?

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

A decrease in the overall price level or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

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

In the U.S., taxes on capital gains are computed using

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

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

A decrease in the overall price level or falling prices) is called _. An extraordinarily high rate of inflation is called _.