Question 1

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 2

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. What quantity is measured along the vertical axis?

Accepted Answer

A)  the price level 
B)  the velocity of money 
C)  the value of money 
D)  the quantity of money 
A)  the price level 
B)  the velocity of money 
C)  the value of money 
D)  the quantity of money

Question 3

The shoeleather cost of inflation refers to

Accepted Answer

A)  the redistributional effects of unexpected inflation. 
B)  the time spent searching for low prices when inflation rises. 
C)  the waste of resources used to maintain lower money holdings. 
D)  the increased cost to the government of printing more money. 
A)  the redistributional effects of unexpected inflation. 
B)  the time spent searching for low prices when inflation rises. 
C)  the waste of resources used to maintain lower money holdings. 
D)  the increased cost to the government of printing more money.

Question 4

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 3 percent; the tax rate is 25 percent. 
B)  Inflation is 1 percent; the tax rate is 50 percent. 
C)  Inflation is 1 percent; the tax rate is 55 percent. 
D)  Inflation is 4 percent; the tax rate is 10 percent. 
A)  Inflation is 3 percent; the tax rate is 25 percent. 
B)  Inflation is 1 percent; the tax rate is 50 percent. 
C)  Inflation is 1 percent; the tax rate is 55 percent. 
D)  Inflation is 4 percent; the tax rate is 10 percent.

Question 5

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Accepted Answer

A)  The country has high money supply growth. 
B)  Inflation is acting like a tax on everyone who holds money. 
C)  The government is printing money to finance its expenditures. 
D)  All of the above are correct. 
A)  The country has high money supply growth. 
B)  Inflation is acting like a tax on everyone who holds money. 
C)  The government is printing money to finance its expenditures. 
D)  All of the above are correct.

Question 6

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before­tax real capital gain?

Accepted Answer

A)  $1,300 - $1,000(1.05) and this is the gain he is to report on his income tax 
B)  $1,300 - $1,000(1.05) but he is to report a $300 gain on his income tax 
C)  $1,300 - $1,000(1.07) and this is the gain he is to report on his income tax 
D)  $1,300 - $1,000(1.07) but he is to report a $300 gain on his income tax 
A)  $1,300 - $1,000(1.05) and this is the gain he is to report on his income tax 
B)  $1,300 - $1,000(1.05) but he is to report a $300 gain on his income tax 
C)  $1,300 - $1,000(1.07) and this is the gain he is to report on his income tax 
D)  $1,300 - $1,000(1.07) but he is to report a $300 gain on his income tax

Question 7

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

Accepted Answer

A)  2.4 percent. 
B)  3.5 percent. 
C)  8.5 percent. 
D)  15 percent. 
A)  2.4 percent. 
B)  3.5 percent. 
C)  8.5 percent. 
D)  15 percent.

Question 8

If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?

Accepted Answer

P = MV/Y. With the numbers giv

Question 9

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  3.6 percent. 
B)  2.4 percent. 
C)  2.0 percent. 
D)  4.4 percent. 
A)  3.6 percent. 
B)  2.4 percent. 
C)  2.0 percent. 
D)  4.4 percent.

Question 10

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Accepted Answer

A)  decrease that benefited creditors at the expense of debtors. 
B)  decrease that benefited debtors at the expense of creditors. 
C)  increase that benefited creditors at the expense of debtors. 
D)  increase that benefited debtors at the expense of creditors. 
A)  decrease that benefited creditors at the expense of debtors. 
B)  decrease that benefited debtors at the expense of creditors. 
C)  increase that benefited creditors at the expense of debtors. 
D)  increase that benefited debtors at the expense of creditors.

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. At the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)  -33 percent 
B)  17 percent 
C)  50 percent 
D)  67 percent 
A)  -33 percent 
B)  17 percent 
C)  50 percent 
D)  67 percent

Question 12

The inflation tax falls mostly heavily on

Accepted Answer

A)  those who hold a lot of currency and accounts for a large share of U.S. government revenue. 
B)  those who hold a lot of currency but accounts for a small share of U.S. government revenue. 
C)  those who hold little currency and accounts for a large share of U.S. government revenue. 
D)  those who hold little currency but accounts for a small share of U.S. government revenue. 
A)  those who hold a lot of currency and accounts for a large share of U.S. government revenue. 
B)  those who hold a lot of currency but accounts for a small share of U.S. government revenue. 
C)  those who hold little currency and accounts for a large share of U.S. government revenue. 
D)  those who hold little currency but accounts for a small share of U.S. government revenue.

Question 13

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Accepted Answer

A)  shifts right, causing the price level to rise. 
B)  shifts right, causing the price level to fall. 
C)  shifts left, causing the price level to rise. 
D)  shifts left, causing the price level to fall. 
A)  shifts right, causing the price level to rise. 
B)  shifts right, causing the price level to fall. 
C)  shifts left, causing the price level to rise. 
D)  shifts left, causing the price level to fall.

Question 14

Which of the following is correct?

Accepted Answer

A)  The classical dichotomy separates real and nominal variables. 
B)  Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C)  When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D)  All of the above are correct. 
A)  The classical dichotomy separates real and nominal variables. 
B)  Monetary neutrality is the proposition that changes in the money supply do not change real variables. 
C)  When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. 
D)  All of the above are correct.

Question 15

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A)  the expected real interest rate is 7 percent. 
B)  the expected real interest rate is 1 percent. 
C)  the expected real interest rate is 1.33 percent. 
D)  the expected real interest rate is 12 percent. 
A)  the expected real interest rate is 7 percent. 
B)  the expected real interest rate is 1 percent. 
C)  the expected real interest rate is 1.33 percent. 
D)  the expected real interest rate is 12 percent.

Question 16

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Accepted Answer

The answer of The idea that firms incur actual costs...

Question 17

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t

Question 18

Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?

Accepted Answer

A)  both interest income and capital gains. 
B)  interest income but not capital gains. 
C)  capital gains but not interest income. 
D)  neither interest income nor capital gains. 
A)  both interest income and capital gains. 
B)  interest income but not capital gains. 
C)  capital gains but not interest income. 
D)  neither interest income nor capital gains.

Question 19

Relative­price variability is "automatic" when

Accepted Answer

A)  firms change prices only once in a while. 
B)  firms change prices often. 
C)  people increase the frequency of their trips to the bank. 
D)  people decrease the frequency of their trips to the bank. 
A)  firms change prices only once in a while. 
B)  firms change prices often. 
C)  people increase the frequency of their trips to the bank. 
D)  people decrease the frequency of their trips to the bank.

Question 20

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 velocity. 
B)  either a rise in output or a fall in velocity. 
C)  either a fall in output or a rise in velocity. 
D)  either a fall in output or a fall in velocity. 
A)  either a rise in output or a rise in velocity. 
B)  either a rise in output or a fall in velocity. 
C)  either a fall in output or a rise in velocity. 
D)  either a fall in output or a fall in velocity.

Exam 30: Money Growth and Inflation

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

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. What quantity is measured along the vertical axis?

The shoeleather cost of inflation refers to

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?

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before­tax real capital gain?

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

If velocity is 6, real output is 10,000, and M is 20,000 what would the price level be? If M increases to 25,000 but V and Y do not change, what happens to the price level? Are the change in the money supply and the change in the price level proportional?

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

The inflation tax falls mostly heavily on

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve

Which of the following is correct?

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?

Relative­price variability is "automatic" when

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

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

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's beforetax real capital gain?

The idea that firms incur actual costs when they change prices is known as _. Firms in countries with lower inflation rates will change price _ frequently compared to those countries where inflation is higher.

Relativeprice variability is "automatic" when