Question 1

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Accepted Answer

A)  a real interest rate of 3 percent and an inflation rate of 2 percent. 
B)  a real interest rate of 7 percent and an inflation rate of 1 percent. 
C)  a real interest rate of 5 percent and an inflation rate of 1 percent. 
D)  a real interest rate of 6 percent and an inflation rate of 1 percent. 
A)  a real interest rate of 3 percent and an inflation rate of 2 percent. 
B)  a real interest rate of 7 percent and an inflation rate of 1 percent. 
C)  a real interest rate of 5 percent and an inflation rate of 1 percent. 
D)  a real interest rate of 6 percent and an inflation rate of 1 percent. C

Question 2

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False  False

Question 3

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Accepted Answer

A)  Unemployment 
B)  Productivity 
C)  Inflation 
D)  Monetary policy 
A)  Unemployment 
B)  Productivity 
C)  Inflation 
D)  Monetary policy C

Question 4

Economic variables whose values are measured in monetary units 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 5

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 6

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. What quantity is measured along the horizontal axis?

Accepted Answer

A)  the price level 
B)  the real interest rate 
C)  the value of money 
D)  the quantity of money 
A)  the price level 
B)  the real interest rate 
C)  the value of money 
D)  the quantity of money

Question 7

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A)  the inflation rate and growth of real GDP. 
B)  the inflation rate but not the growth rate of real GDP. 
C)  the growth rate of real GDP, but not the inflation rate. 
D)  neither the inflation rate nor the growth rate of real GDP. 
A)  the inflation rate and growth of real GDP. 
B)  the inflation rate but not the growth rate of real GDP. 
C)  the growth rate of real GDP, but not the inflation rate. 
D)  neither the inflation rate nor the growth rate of real GDP.

Question 8

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A)  shift to the right of the money demand curve. 
B)  shift to the left of the money demand curve. 
C)  movement to the left along the money demand curve. 
D)  movement to the right along the money demand curve. 
A)  shift to the right of the money demand curve. 
B)  shift to the left of the money demand curve. 
C)  movement to the left along the money demand curve. 
D)  movement to the right along the money demand curve.

Question 9

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Accepted Answer

A)  lenders and people holding a lot of currency 
B)  lenders but not people holding a lot of currency 
C)  people holding a lot of currency but not lenders 
D)  neither lenders nor people holding a lot of currency 
A)  lenders and people holding a lot of currency 
B)  lenders but not people holding a lot of currency 
C)  people holding a lot of currency but not lenders 
D)  neither lenders nor people holding a lot of currency

Question 10

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

Accepted Answer

A)  will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B)  will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C)  will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D)  will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
A)  will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
B)  will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. 
C)  will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent. 
D)  will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.

Question 13

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 14

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Accepted Answer

A)  spend more so the value of a dollar rises. 
B)  spend more so the value of a dollar falls. 
C)  spend less so the value of a dollar rises. 
D)  spend less so the value of a dollar falls. 
A)  spend more so the value of a dollar rises. 
B)  spend more so the value of a dollar falls. 
C)  spend less so the value of a dollar rises. 
D)  spend less so the value of a dollar falls.

Question 15

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Accepted Answer

A)  135 
B)  132 
C)  125 
D)  121 
A)  135 
B)  132 
C)  125 
D)  121

Question 16

The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera (the local currency) in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)  -20 percent 
B)  20 percent 
C)  42 percent 
D)  64 percent 
A)  -20 percent 
B)  20 percent 
C)  42 percent 
D)  64 percent

Question 17

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Accepted Answer

A)  nominal wage is higher. 
B)  nominal wage is lower. 
C)  real wage is higher. 
D)  real wage is lower. 
A)  nominal wage is higher. 
B)  nominal wage is lower. 
C)  real wage is higher. 
D)  real wage is lower.

Question 18

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Accepted Answer

The nominal interest

Question 19

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Accepted Answer

A)  The dollar price of jeans and the relative price of jeans are both nominal variables. 
B)  The dollar price of jeans and the relative price of jeans are both real variables. 
C)  The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable. 
D)  The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable. 
A)  The dollar price of jeans and the relative price of jeans are both nominal variables. 
B)  The dollar price of jeans and the relative price of jeans are both real variables. 
C)  The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable. 
D)  The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable.

Question 20

Relative-price variability

Accepted Answer

A)  rises with inflation, leading to an improved allocation of resources. 
B)  rises with inflation, leading to a misallocation of resources. 
C)  falls with inflation, leading to an improved allocation of resources. 
D)  falls with inflation, leading to a misallocation of resources. 
A)  rises with inflation, leading to an improved allocation of resources. 
B)  rises with inflation, leading to a misallocation of resources. 
C)  falls with inflation, leading to an improved allocation of resources. 
D)  falls with inflation, leading to a misallocation of resources.

Exam 30: Money Growth and Inflation

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Economic variables whose values are measured in monetary units are called

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

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. What quantity is measured along the horizontal axis?

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

The quantity equation is M x V = P x Y.

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

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

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

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Relative-price variability

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's aftertax real rate of interest