Question 1

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 2

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)  nominal interest rates. 
B)  real interest rates. 
C)  the price level. 
D)  the money supply. 
A)  nominal interest rates. 
B)  real interest rates. 
C)  the price level. 
D)  the money supply.

Question 3

You observe people going to the bank more frequently. Other things the same this could result from

Accepted Answer

A)  an increase in inflation which increases money demand. 
B)  an increase in inflation which reduces money demand. 
C)  a decrease in inflation which increases money demand. 
D)  a decrease in inflation which reduces money demand. 
A)  an increase in inflation which increases money demand. 
B)  an increase in inflation which reduces money demand. 
C)  a decrease in inflation which increases money demand. 
D)  a decrease in inflation which reduces money demand.

Question 4

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 5

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Accepted Answer

A)  both the price level and real GDP would rise by 5 percent. 
B)  the price level would rise by 5 percent and real GDP would be unchanged. 
C)  the price level would be unchanged and real GDP would rise by 5 percent. 
D)  both the price level and real GDP would be unchanged. 
A)  both the price level and real GDP would rise by 5 percent. 
B)  the price level would rise by 5 percent and real GDP would be unchanged. 
C)  the price level would be unchanged and real GDP would rise by 5 percent. 
D)  both the price level and real GDP would be unchanged.

Question 6

Over the past 80 years, the overall price level in the U.S. has experienced a(n)

Accepted Answer

A)  4-fold increase. 
B)  10-fold increase. 
C)  13-fold increase. 
D)  17-fold increase. 
A)  4-fold increase. 
B)  10-fold increase. 
C)  13-fold increase. 
D)  17-fold increase.

Question 7

The inflation tax

Accepted Answer

A)  transfers wealth from the government to households. 
B)  is the increase in real income taxes due to lack of indexation in income tax rules. 
C)  is a tax on everyone who holds money. 
D)  All of the above are correct. 
A)  transfers wealth from the government to households. 
B)  is the increase in real income taxes due to lack of indexation in income tax rules. 
C)  is a tax on everyone who holds money. 
D)  All of the above are correct.

Question 8

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 9

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Accepted Answer

A)  10.5 percent 
B)  20 percent 
C)  5.5 percent 
D)  3.2 percent 
A)  10.5 percent 
B)  20 percent 
C)  5.5 percent 
D)  3.2 percent

Question 10

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 11

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Accepted Answer

A)  60 percent. 
B)  80 percent. 
C)  220 percent. 
D)  24,000 percent. 
A)  60 percent. 
B)  80 percent. 
C)  220 percent. 
D)  24,000 percent.

Question 12

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall. 
A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall.

Question 13

If the price level last year was 180 and this year it is 176, then

Accepted Answer

A)  there was inflation of 2.3 percent. 
B)  there was inflation of 4.0 percent. 
C)  there was deflation of 2.2 percent. 
D)  there was deflation of 4.0 percent. 
A)  there was inflation of 2.3 percent. 
B)  there was inflation of 4.0 percent. 
C)  there was deflation of 2.2 percent. 
D)  there was deflation of 4.0 percent.

Question 14

Wealth is redistributed from debtors to creditors when inflation is

Accepted Answer

A)  high, whether it is expected or not. 
B)  low, whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low. 
A)  high, whether it is expected or not. 
B)  low, whether it is expected or not. 
C)  unexpectedly high. 
D)  unexpectedly low.

Question 15

The data on hyperinflation show a clear link between the quantity of money and

Accepted Answer

A)  the price level. 
B)  growth rate of GDP. 
C)  unemployment rate. 
D)  velocity. 
A)  the price level. 
B)  growth rate of GDP. 
C)  unemployment rate. 
D)  velocity.

Question 16

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)  7 percent 
B)  2.5 percent 
C)  10 percent 
D)  3 percent 
A)  7 percent 
B)  2.5 percent 
C)  10 percent 
D)  3 percent

Question 17

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

Accepted Answer

A)  the price level and nominal wages 
B)  the price level, but not the nominal wage 
C)  the nominal wage, but not the price level 
D)  neither the nominal wage nor the price level 
A)  the price level and nominal wages 
B)  the price level, but not the nominal wage 
C)  the nominal wage, but not the price level 
D)  neither the nominal wage nor the price level

Question 18

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  5.25 percent 
B)  3.05 percent 
C)  2.55 percent 
D)  1.25 percent 
A)  5.25 percent 
B)  3.05 percent 
C)  2.55 percent 
D)  1.25 percent

Question 19

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)  Inflation is 5 percent; the tax rate is 40 percent. 
B)  Inflation is 4 percent; the tax rate is 30 percent. 
C)  Inflation is 3 percent; the tax rate is 45 percent. 
D)  Inflation is 2 percent; the tax rate is 50 percent. 
A)  Inflation is 5 percent; the tax rate is 40 percent. 
B)  Inflation is 4 percent; the tax rate is 30 percent. 
C)  Inflation is 3 percent; the tax rate is 45 percent. 
D)  Inflation is 2 percent; the tax rate is 50 percent.

Question 20

The price level rises if either

Accepted Answer

A)  money demand or money supply shifts rightward. 
B)  money demand shifts rightward or money supply shifts leftward. 
C)  money demand shifts leftward or money supply shifts rightward. 
D)  money demand or money supply shifts leftward. 
A)  money demand or money supply shifts rightward. 
B)  money demand shifts rightward or money supply shifts leftward. 
C)  money demand shifts leftward or money supply shifts rightward. 
D)  money demand or money supply shifts leftward.

Exam 30: Money Growth and Inflation

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

You observe people going to the bank more frequently. Other things the same this could result from

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Over the past 80 years, the overall price level in the U.S. has experienced a(n)

The inflation tax

If money demand shifts right, the price level falls.

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

If the price level last year was 180 and this year it is 176, then

Wealth is redistributed from debtors to creditors when inflation is

The data on hyperinflation show a clear link between the quantity of money and

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

According to the classical dichotomy, when the money supply doubles, which of the following also doubles?

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

The price level rises if either

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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