Question 1

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  3 percent 
D)  5 percent 
A)  10 percent 
B)  20 percent 
C)  3 percent 
D)  5 percent

Question 2

If P = 4 and Y = 200, then which of the following pairs of values are possible?

Accepted Answer

A)  M = 800, V = 16 
B)  M = 150, V = 3 
C)  M = 400, V = 2 
D)  M = 200, V = 2 
A)  M = 800, V = 16 
B)  M = 150, V = 3 
C)  M = 400, V = 2 
D)  M = 200, V = 2

Question 3

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold it for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after­tax gain? (Hint: What's the real value of the land in current prices?)

Accepted Answer

The answer of Fifteen years ago your parents purchased some...

Question 6

If the price level increased from 120 to 144, then what was the inflation rate?

Accepted Answer

A)  24 percent. 
B)  25 percent. 
C)  20 percent. 
D)  17 percent. 
A)  24 percent. 
B)  25 percent. 
C)  20 percent. 
D)  17 percent.

Question 7

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

Accepted Answer

A)  only if the increase in her nominal income is less than six percent. 
B)  only if the increase in her nominal income is more than six percent. 
C)  since inflation always reduces purchasing power. 
D)  only if her real income increases. 
A)  only if the increase in her nominal income is less than six percent. 
B)  only if the increase in her nominal income is more than six percent. 
C)  since inflation always reduces purchasing power. 
D)  only if her real income increases.

Question 8

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Question 9

When the price level rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases, and so the value of money rises. 
B)  increases, and so the value of money falls. 
C)  decreases, and so the value of money rises. 
D)  decreases, and so the value of money falls 
A)  increases, and so the value of money rises. 
B)  increases, and so the value of money falls. 
C)  decreases, and so the value of money rises. 
D)  decreases, and so the value of money falls

Question 10

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A)  menu costs 
B)  inflation tax 
C)  shoeleather costs 
D)  All of the above are correct. 
A)  menu costs 
B)  inflation tax 
C)  shoeleather costs 
D)  All of the above are correct.

Question 11

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

Accepted Answer

deflation,

Question 12

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

Accepted Answer

A)  and equilibrium quantity of money to increase. 
B)  and equilibrium quantity of money to decrease. 
C)  to increase, while the equilibrium quantity of money decreases. 
D)  to decrease, while the equilibrium quantity of money increases. 
A)  and equilibrium quantity of money to increase. 
B)  and equilibrium quantity of money to decrease. 
C)  to increase, while the equilibrium quantity of money decreases. 
D)  to decrease, while the equilibrium quantity of money increases.

Question 13

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 14

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Accepted Answer

A) True 
 B)False

Question 15

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

Accepted Answer

A)  0.33. 
B)  2.0. 
C)  4.5. 
D)  0.5. 
A)  0.33. 
B)  2.0. 
C)  4.5. 
D)  0.5.

Question 16

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 real interest rates. 
B)  the inflation rate, but not real interest rates. 
C)  real interest rates, but not the inflation rate. 
D)  neither the inflation rate nor real interest rates. 
A)  the inflation rate and real interest rates. 
B)  the inflation rate, but not real interest rates. 
C)  real interest rates, but not the inflation rate. 
D)  neither the inflation rate nor real interest rates.

Question 17

The supply of money increases when

Accepted Answer

A)  the price level falls. 
B)  the interest rate increases. 
C)  the Fed makes open-market purchases. 
D)  money demand increases. 
A)  the price level falls. 
B)  the interest rate increases. 
C)  the Fed makes open-market purchases. 
D)  money demand increases.

Question 18

When the price level falls, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases, so the value of money rises. 
B)  increases, so the value of money falls. 
C)  decreases, so the value of money rises. 
D)  decreases, so the value of money falls. 
A)  increases, so the value of money rises. 
B)  increases, so the value of money falls. 
C)  decreases, so the value of money rises. 
D)  decreases, so the value of money falls.

Question 19

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Accepted Answer

A)  excess demand for money which causes the price level to rise. 
B)  excess demand for money which causes the price level to fall. 
C)  excess supply of money which causes the price level to rise. 
D)  excess supply of money which causes the price level to fall. 
A)  excess demand for money which causes the price level to rise. 
B)  excess demand for money which causes the price level to fall. 
C)  excess supply of money which causes the price level to rise. 
D)  excess supply of money which causes the price level to fall.

Question 20

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Accepted Answer

A)  inflation-induced tax distortion. 
B)  relative-price-variability cost. 
C)  shoeleather cost. 
D)  menu cost. 
A)  inflation-induced tax distortion. 
B)  relative-price-variability cost. 
C)  shoeleather cost. 
D)  menu cost.

Exam 30: Money Growth and Inflation

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

If P = 4 and Y = 200, then which of the following pairs of values are possible?

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

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

If the price level increased from 120 to 144, then what was the inflation rate?

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

When the price level rises, the number of dollars needed to buy a representative basket of goods

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

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

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

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

The supply of money increases when

When the price level falls, the number of dollars needed to buy a representative basket of goods

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

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

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