Question 1

The velocity of money is

Accepted Answer

A)  the rate at which the Fed puts money into the economy. 
B)  the same thing as the long-term growth rate of the money supply. 
C)  the money supply divided by nominal GDP. 
D)  the average number of times per year a dollar is spent. 
A)  the rate at which the Fed puts money into the economy. 
B)  the same thing as the long-term growth rate of the money supply. 
C)  the money supply divided by nominal GDP. 
D)  the average number of times per year a dollar is spent.

Question 2

Money demand refers to

Accepted Answer

A)  the total quantity of financial assets that people want to hold. 
B)  how much income people want to earn per year. 
C)  how much wealth people want to hold in liquid form. 
D)  how much currency the Federal Reserve decides to print. 
A)  the total quantity of financial assets that people want to hold. 
B)  how much income people want to earn per year. 
C)  how much wealth people want to hold in liquid form. 
D)  how much currency the Federal Reserve decides to print.

Question 3

In the long run, money demand and money supply determine

Accepted Answer

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

Question 4

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 5

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A)  Steve had both the higher before-tax real gain and the higher after-tax real gain. 
B)  Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain. 
C)  Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain. 
D)  Stephanie had both the higher before-tax real gain and the higher after-tax real gain. 
A)  Steve had both the higher before-tax real gain and the higher after-tax real gain. 
B)  Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain. 
C)  Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain. 
D)  Stephanie had both the higher before-tax real gain and the higher after-tax real gain.

Question 6

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 7

Higher inflation makes relative prices

Accepted Answer

A)  more variable, making it more likely that resources will be allocated to their best use. 
B)  more variable, making it less likely that resources will be allocated to their best use. 
C)  less variable, making it more likely that resources will be allocated to their best use. 
D)  less variable, making it less likely that resources will be allocated to their best use. 
A)  more variable, making it more likely that resources will be allocated to their best use. 
B)  more variable, making it less likely that resources will be allocated to their best use. 
C)  less variable, making it more likely that resources will be allocated to their best use. 
D)  less variable, making it less likely that resources will be allocated to their best use.

Question 8

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)  6 times its old value. 
B)  3 times its old value. 
C)  1.5 times its old value. 
D)  0.75 times its old value 
A)  6 times its old value. 
B)  3 times its old value. 
C)  1.5 times its old value. 
D)  0.75 times its old value

Question 9

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who borrow than for those who save. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation. 
D)  All of the above are correct. 
A)  for those who borrow than for those who save. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation. 
D)  All of the above are correct.

Question 10

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. the Fed increases the money supply.
b. people decide to demand less money at each value of money.

Accepted Answer

a. The Fed increases the money supply. W

Question 11

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through a(n) _____ in the price level.

Accepted Answer

The answer of When the Federal Reserve injects money into...

Question 12

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 13

From the early 1980's through the 1990's, the nominal interest rate

Accepted Answer

A)  fell because the Fed got inflation under control. 
B)  fell because the Fed let inflation get out of control. 
C)  rose because the Fed got inflation under control. 
D)  rose because the Fed let inflation get out of control. 
A)  fell because the Fed got inflation under control. 
B)  fell because the Fed let inflation get out of control. 
C)  rose because the Fed got inflation under control. 
D)  rose because the Fed let inflation get out of control.

Question 14

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 15

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low. 
A)  high and it turns out to be high. 
B)  low and it turns out to be low. 
C)  low and it turns out to be high. 
D)  high and it turns out to be low.

Question 16

Banks advertise

Accepted Answer

A)  the real interest rate, which is how fast the dollar value of savings grows. 
B)  the real interest rate, which is how fast the purchasing power of savings grows. 
C)  the nominal interest rate, which is how fast the dollar value of savings grows. 
D)  the nominal interest rate, which is how fast the purchasing power of savings grows. 
A)  the real interest rate, which is how fast the dollar value of savings grows. 
B)  the real interest rate, which is how fast the purchasing power of savings grows. 
C)  the nominal interest rate, which is how fast the dollar value of savings grows. 
D)  the nominal interest rate, which is how fast the purchasing power of savings grows.

Question 17

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who save than for those who borrow. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage. 
D)  for savers in low income tax brackets than for savers in high income tax brackets. 
A)  for those who save than for those who borrow. 
B)  for those who hold a little money than for those who hold a lot of money. 
C)  for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage. 
D)  for savers in low income tax brackets than for savers in high income tax brackets.

Question 18

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Accepted Answer

A)  1/4 
B)  2 
C)  4 
D)  1 
A)  1/4 
B)  2 
C)  4 
D)  1

Question 19

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. 
B)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
C)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars. 
A)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. 
B)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. 
C)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. 
D)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 20

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Exam 30: Money Growth and Inflation

The velocity of money is

Money demand refers to

In the long run, money demand and money supply determine

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?

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Higher inflation makes relative prices

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

High and unexpected inflation has a greater cost

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through a(n) _____ in the price level.

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

From the early 1980's through the 1990's, the nominal interest rate

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Wealth is redistributed from creditors to debtors when inflation was expected to be

Banks advertise

High and unexpected inflation has a greater cost

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

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

When the Federal Reserve injects money into the banking system, it initially causes an excess _ of money. Equilibrium in the money market is reestablished through a(n) _ in the price level.

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.