Question 1

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)  either a rise in output or a rise in the rate at which money changes hands. 
B)  either a rise in output or a fall in the rate at which money changes hands. 
C)  either a fall in output or a rise in the rate at which money changes hands. 
D)  either a fall in output or a fall in the rate at which money changes hands. 
A)  either a rise in output or a rise in the rate at which money changes hands. 
B)  either a rise in output or a fall in the rate at which money changes hands. 
C)  either a fall in output or a rise in the rate at which money changes hands. 
D)  either a fall in output or a fall in the rate at which money changes hands.

Question 2

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)  spend more time looking for bargains. 
B)  spend less time looking for bargains. 
C)  hold more money. 
D)  hold less money. 
A)  spend more time looking for bargains. 
B)  spend less time looking for bargains. 
C)  hold more money. 
D)  hold less money.

Question 3

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 4

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Accepted Answer

A)  $250. 
B)  $25,000. 
C)  $1,000. 
D)  $6,250. 
A)  $250. 
B)  $25,000. 
C)  $1,000. 
D)  $6,250.

Question 5

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Accepted Answer

A)  3.5 percent and a real interest rate of 5 percent. 
B)  3.5 percent and a real interest rate of 2 percent. 
C)  5 percent and a real interest rate of 3.5 percent 
D)  5 percent and a real interest rate of 2 percent 
A)  3.5 percent and a real interest rate of 5 percent. 
B)  3.5 percent and a real interest rate of 2 percent. 
C)  5 percent and a real interest rate of 3.5 percent 
D)  5 percent and a real interest rate of 2 percent

Question 6

Velocity is computed as the

Accepted Answer

A)  price level times real GDP divided by the money supply. 
B)  price level times the money supply divided by real GDP. 
C)  real GDP times the money supply divided by the price level. 
D)  real GDP times the money supply divided by the rate at which money changes hands. 
A)  price level times real GDP divided by the money supply. 
B)  price level times the money supply divided by real GDP. 
C)  real GDP times the money supply divided by the price level. 
D)  real GDP times the money supply divided by the rate at which money changes hands.

Question 7

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 8

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 2.5 percent; the tax rate is 25 percent. 
B)  Inflation is 3 percent; the tax rate is 20 percent. 
C)  Inflation is 2 percent; the tax rate is 30 percent. 
D)  The after-tax real interest rate is the same for all of the above. 
A)  Inflation is 2.5 percent; the tax rate is 25 percent. 
B)  Inflation is 3 percent; the tax rate is 20 percent. 
C)  Inflation is 2 percent; the tax rate is 30 percent. 
D)  The after-tax real interest rate is the same for all of the above.

Question 9

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)  affect both nominal and real variables. 
B)  affect neither nominal nor real variables. 
C)  affect nominal variables, but not real variables. 
D)  do not affect nominal variables, but do affect real variables. 
A)  affect both nominal and real variables. 
B)  affect neither nominal nor real variables. 
C)  affect nominal variables, but not real variables. 
D)  do not affect nominal variables, but do affect real variables.

Question 10

People can reduce the inflation tax by

Accepted Answer

A)  reducing savings. 
B)  increasing deductions on their income tax. 
C)  reducing cash holdings. 
D)  None of the above is correct. 
A)  reducing savings. 
B)  increasing deductions on their income tax. 
C)  reducing cash holdings. 
D)  None of the above is correct.

Question 11

As the price level rises, the value of money

Accepted Answer

A)  increases, so people must hold less money to purchase goods and services. 
B)  increases, so people must hold more money to purchase goods and services. 
C)  decreases, so people must hold more money to purchase goods and services. 
D)  decreases, so people must hold less money to purchase goods and services. 
A)  increases, so people must hold less money to purchase goods and services. 
B)  increases, so people must hold more money to purchase goods and services. 
C)  decreases, so people must hold more money to purchase goods and services. 
D)  decreases, so people must hold less money to purchase goods and services.

Question 12

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)  is easier to impose. 
B)  reduces inflation. 
C)  falls mainly on high-income individuals. 
D)  reduces the real cost of government expenditure. 
A)  is easier to impose. 
B)  reduces inflation. 
C)  falls mainly on high-income individuals. 
D)  reduces the real cost of government expenditure.

Question 13

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

Accepted Answer

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

Question 14

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

The answer of One year ago Sam purchased bonds for...

Question 15

In which case below is the real interest rate the highest?

Accepted Answer

A)  the nominal interest rate = 1% and inflation = 3% 
B)  the nominal interest rate = 6% and inflation = 4% 
C)  the nominal interest rate = 2% and inflation = -1% 
D)  the nominal interest rate = 2% and inflation = 1% 
A)  the nominal interest rate = 1% and inflation = 3% 
B)  the nominal interest rate = 6% and inflation = 4% 
C)  the nominal interest rate = 2% and inflation = -1% 
D)  the nominal interest rate = 2% and inflation = 1%

Question 16

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A)  is 1.5 times its old value. 
B)  is 3 times its old value. 
C)  is 6 times its old value. 
D)  is the same as its old value. 
A)  is 1.5 times its old value. 
B)  is 3 times its old value. 
C)  is 6 times its old value. 
D)  is the same as its old value.

Question 17

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 18

Economists agree that

Accepted Answer

A)  neither high inflation nor moderate inflation is very costly. 
B)  both high and moderate inflation are quite costly. 
C)  high inflation is costly, but they disagree about the costs of moderate inflation. 
D)  moderate inflation is as costly as high inflation. 
A)  neither high inflation nor moderate inflation is very costly. 
B)  both high and moderate inflation are quite costly. 
C)  high inflation is costly, but they disagree about the costs of moderate inflation. 
D)  moderate inflation is as costly as high inflation.

Question 19

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci

Question 20

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Accepted Answer

rapid money supply g

Exam 30: Money Growth and Inflation

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Shoeleather costs arise when higher inflation rates induce people to

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

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Velocity is computed as the

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

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

The classical dichotomy argues that changes in the money supply

People can reduce the inflation tax by

As the price level rises, the value of money

Governments may prefer an inflation tax to some other type of tax because the inflation tax

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

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

In which case below is the real interest rate the highest?

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Economists agree that

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

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

In the long run inflation is explained by . For countries that had hyperinflation this source of inflation arose primarily because the government .