Question 1

When the Consumer Price Index increases from 100 to 120

Accepted Answer

A)  more money is needed to buy the same amount of goods, so the value of money falls. 
B)  more money is needed to buy the same amount of goods, so the value of money rises. 
C)  less money is needed to buy the same amount of goods, so the value of money falls. 
D)  less money is needed to buy the same amount of goods, so the value of money rises. 
A)  more money is needed to buy the same amount of goods, so the value of money falls. 
B)  more money is needed to buy the same amount of goods, so the value of money rises. 
C)  less money is needed to buy the same amount of goods, so the value of money falls. 
D)  less money is needed to buy the same amount of goods, so the value of money rises.

Question 2

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

Accepted Answer

A)  both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B)  both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C)  a nominal gain and a real loss, and you paid taxes on the nominal gain. 
D)  a nominal gain and a real loss, and you paid no taxes on the transaction. 
A)  both a nominal gain and a real gain, and you paid taxes on the nominal gain. 
B)  both a nominal gain and a real gain, and you paid taxes only on the real gain. 
C)  a nominal gain and a real loss, and you paid taxes on the nominal gain. 
D)  a nominal gain and a real loss, and you paid no taxes on the transaction.

Question 3

Suppose there is a surplus in the money market.

Accepted Answer

A)  This could have been created by an increase in the money supply. The value of money will rise. 
B)  This could have been created by an increase in the money supply. The value of money will fall. 
C)  This could have been created by a decrease in the money supply. The value of money will rise. 
D)  This could have been created by a decrease in the money supply. The value of money will fall. 
A)  This could have been created by an increase in the money supply. The value of money will rise. 
B)  This could have been created by an increase in the money supply. The value of money will fall. 
C)  This could have been created by a decrease in the money supply. The value of money will rise. 
D)  This could have been created by a decrease in the money supply. The value of money will fall.

Question 4

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Accepted Answer

A)  both the upward trend in real GDP and the upward trend in the price level 
B)  the upward trend in real GDP but not the upward trend in the price level 
C)  the upward trend in the price level but not the upward trend in real GDP 
D)  neither the upward trend in the price level nor the upward trend in real GDP 
A)  both the upward trend in real GDP and the upward trend in the price level 
B)  the upward trend in real GDP but not the upward trend in the price level 
C)  the upward trend in the price level but not the upward trend in real GDP 
D)  neither the upward trend in the price level nor the upward trend in real GDP

Question 5

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A)  the inflation tax. 
B)  menu costs. 
C)  the inflation fallacy. 
D)  shoeleather costs. 
A)  the inflation tax. 
B)  menu costs. 
C)  the inflation fallacy. 
D)  shoeleather costs.

Question 6

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  4.8 percent 
B)  5.4 percent 
C)  7.2 percent 
D)  4.2 percent. 
A)  4.8 percent 
B)  5.4 percent 
C)  7.2 percent 
D)  4.2 percent.

Question 7

In the U.S., taxes on capital gains are computed using

Accepted Answer

A)  nominal gains. This is one way by which higher inflation discourages saving. 
B)  nominal gains. This is one way by which higher inflation encourages saving. 
C)  real gains. This is one way by which higher inflation discourages saving. 
D)  real gains. This is one way by which higher inflation encourages saving. 
A)  nominal gains. This is one way by which higher inflation discourages saving. 
B)  nominal gains. This is one way by which higher inflation encourages saving. 
C)  real gains. This is one way by which higher inflation discourages saving. 
D)  real gains. This is one way by which higher inflation encourages saving.

Question 8

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

Accepted Answer

The answer of The nominal interest rate is eight percent...

Question 9

The source of hyperinflations is primarily

Accepted Answer

A)  lower output growth. 
B)  continuing declines in velocity. 
C)  increases in money-supply growth. 
D)  continuing increases in money demand. 
A)  lower output growth. 
B)  continuing declines in velocity. 
C)  increases in money-supply growth. 
D)  continuing increases in money demand.

Question 10

If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is the real interest rate?

Accepted Answer

A)  8 percent 
B)  2 percent 
C)  15 percent 
D)  1.7 percent 
A)  8 percent 
B)  2 percent 
C)  15 percent 
D)  1.7 percent

Question 11

If inflation is higher than what was expected,

Accepted Answer

A)  creditors receive a lower real interest rate than they had anticipated. 
B)  creditors pay a lower real interest rate than they had anticipated. 
C)  debtors receive a higher real interest rate than they had anticipated. 
D)  debtors pay a higher real interest rate than they had anticipated. 
A)  creditors receive a lower real interest rate than they had anticipated. 
B)  creditors pay a lower real interest rate than they had anticipated. 
C)  debtors receive a higher real interest rate than they had anticipated. 
D)  debtors pay a higher real interest rate than they had anticipated.

Question 12

When inflation falls, people

Accepted Answer

A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes. 
A)  make less frequent trips to the bank and firms make less frequent price changes. 
B)  make less frequent trips to the bank while firms make more frequent price changes. 
C)  make more frequent trips to the bank while firms make less frequent price changes. 
D)  make more frequent trips to the bank and firms make more frequent price changes.

Question 13

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Accepted Answer

A)  .03(1-.20) 
B)  .04(1 -.20) 
C)  .04(1 - .20) - .01 
D)  None of the above is correct. 
A)  .03(1-.20) 
B)  .04(1 -.20) 
C)  .04(1 - .20) - .01 
D)  None of the above is correct.

Question 14

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph. 
A)  0.5 and the equilibrium price level is 2. 
B)  2 and the equilibrium price level is 0.5. 
C)  0.5 and the equilibrium price level cannot be determined from the graph. 
D)  2 and the equilibrium price level cannot be determined from the graph.

Question 15

Inflation can be measured by the

Accepted Answer

A)  change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years. 
B)  change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. 
C)  percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years. 
D)  percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. 
A)  change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years. 
B)  change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. 
C)  percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years. 
D)  percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.

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

Question 17

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A)  rises, because one unit of currency buys more ice cream cones. 
B)  rises, because one unit of currency buys fewer ice cream cones. 
C)  falls, because one unit of currency buys more ice cream cones. 
D)  falls, because one unit of currency buys fewer ice cream cones. 
A)  rises, because one unit of currency buys more ice cream cones. 
B)  rises, because one unit of currency buys fewer ice cream cones. 
C)  falls, because one unit of currency buys more ice cream cones. 
D)  falls, because one unit of currency buys fewer ice cream cones.

Question 18

Which of the following is correct?

Accepted Answer

A)  Inflation impedes financial markets in their role of allocating savings to alternative investments. 
B)  Inflation encourages savings through the tax treatment on capital gains. 
C)  Inflation encourages larger holdings of currency by the public. 
D)  Inflation reduces people's real purchasing power. 
A)  Inflation impedes financial markets in their role of allocating savings to alternative investments. 
B)  Inflation encourages savings through the tax treatment on capital gains. 
C)  Inflation encourages larger holdings of currency by the public. 
D)  Inflation reduces people's real purchasing power.

Question 19

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Accepted Answer

A)  Y rose, V rose 
B)  Y fell, V fell 
C)  Y rose, V fell 
D)  Y fell, V rose 
A)  Y rose, V rose 
B)  Y fell, V fell 
C)  Y rose, V fell 
D)  Y fell, V rose

Question 20

When we assume that the supply of money is a variable that the central bank controls, we

Accepted Answer

A)  must then assume as well that the demand for money is not influenced by the value of money. 
B)  must then assume as well that the price level is unrelated to the value of money. 
C)  are ignoring the fact that, in the real world, households are also suppliers of money. 
D)  are ignoring the complications introduced by the role of the banking system. 
A)  must then assume as well that the demand for money is not influenced by the value of money. 
B)  must then assume as well that the price level is unrelated to the value of money. 
C)  are ignoring the fact that, in the real world, households are also suppliers of money. 
D)  are ignoring the complications introduced by the role of the banking system.

Exam 30: Money Growth and Inflation

When the Consumer Price Index increases from 100 to 120

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

Suppose there is a surplus in the money market.

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

The idea that inflation by itself reduces people's purchasing power is called

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

In the U.S., taxes on capital gains are computed using

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

The source of hyperinflations is primarily

If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is the real interest rate?

If inflation is higher than what was expected,

When inflation falls, people

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Inflation can be measured by the

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

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Which of the following is correct?

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

When we assume that the supply of money is a variable that the central bank controls, we

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

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