Question 1

The inflation tax

Accepted Answer

A)  is an alternative to income taxes and government borrowing. 
B)  taxes most those who hold the most money. 
C)  is the revenue created when the government prints money. 
D)  All of the above are correct. 
A)  is an alternative to income taxes and government borrowing. 
B)  taxes most those who hold the most money. 
C)  is the revenue created when the government prints money. 
D)  All of the above are correct.

Question 2

Menu costs refers to

Accepted Answer

A)  resources used by people to maintain lower money holdings when inflation is high. 
B)  resources used to price shop during times of high inflation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation. 
D)  the cost of more frequent price changes induced by higher inflation. 
A)  resources used by people to maintain lower money holdings when inflation is high. 
B)  resources used to price shop during times of high inflation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation. 
D)  the cost of more frequent price changes induced by higher inflation.

Question 3

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 4

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Accepted Answer

M x V = P

Question 5

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 6

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A)  nominal wages 
B)  unemployment 
C)  real GDP 
D)  All of the above are correct. 
A)  nominal wages 
B)  unemployment 
C)  real GDP 
D)  All of the above are correct.

Question 7

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Accepted Answer

A)  The price level and velocity are both 8. 
B)  The price level is 2 and velocity is 8. 
C)  The price level and velocity are both 4. 
D)  The price level is 4 and velocity is 8. 
A)  The price level and velocity are both 8. 
B)  The price level is 2 and velocity is 8. 
C)  The price level and velocity are both 4. 
D)  The price level is 4 and velocity is 8.

Question 8

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts.

Question 9

If a country experienced deflation, then

Accepted Answer

A)  the nominal interest rate would be greater than the real interest rate. 
B)  the real interest rate would be greater than the nominal interest rate. 
C)  the real interest rate would equal the nominal interest rate. 
D)  nominal GDP would be greater than the money supply. 
A)  the nominal interest rate would be greater than the real interest rate. 
B)  the real interest rate would be greater than the nominal interest rate. 
C)  the real interest rate would equal the nominal interest rate. 
D)  nominal GDP would be greater than the money supply.

Question 10

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 11

When inflation causes relative-price variability,

Accepted Answer

A)  consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired. 
B)  consumer decisions are distorted, but markets are still able to efficiently allocate factors of production. 
C)  consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired. 
D)  consumer decisions are not distorted and markets are still able to efficiently allocate factors of production. 
A)  consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired. 
B)  consumer decisions are distorted, but markets are still able to efficiently allocate factors of production. 
C)  consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired. 
D)  consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.

Question 12

Real GDP measures output of final goods and services in physical units.

Accepted Answer

A) True 
 B)False

Question 13

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 16

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

Open marke

Question 17

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch

Question 18

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)  1/P represents the value of money measured in terms of goods and services. 
B)  P can be regarded as the "overall price level." 
C)  an increase in the value of money is associated with a decrease in P. 
D)  All of the above are correct. 
A)  1/P represents the value of money measured in terms of goods and services. 
B)  P can be regarded as the "overall price level." 
C)  an increase in the value of money is associated with a decrease in P. 
D)  All of the above are correct.

Question 19

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)  nominal and real GDP would fall by 7 percent. 
B)  nominal GDP would fall by 7 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would fall by 7 percent. 
D)  neither nominal GDP nor real GDP would change. 
A)  nominal and real GDP would fall by 7 percent. 
B)  nominal GDP would fall by 7 percent; real GDP would be unchanged. 
C)  nominal GDP would be unchanged; real GDP would fall by 7 percent. 
D)  neither nominal GDP nor real GDP would change.

Question 20

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

The inflation tax

Menu costs refers to

Money demand depends on

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

According to the classical dichotomy, which of the following is influenced by monetary factors?

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Why did farmers in the late 1800s dislike deflation?

If a country experienced deflation, then

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

When inflation causes relative-price variability,

Real GDP measures output of final goods and services in physical units.

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

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

Shoeleather costs and menu costs are both costs of anticipated inflation.

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

What are menu costs and why does high inflation increase menu costs?

If P denotes the price of goods and services measured in terms of money, then

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

For a given real interest rate, an increase in the inflation rate reduces the after-tax 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

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

The quantity equation is expressed as _. The rate at which money changes hands is known as _.