Question 1

Under which condition is wealth distributed from creditors to debtors?

Accepted Answer

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

Question 2

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, what happens to the value of money?

Accepted Answer

A)   It increases, so the quantity of money demanded increases.
B)   It increases, so the quantity of money demanded decreases.
C)   It decreases, so the quantity of money demanded decreases.
D)   It decreases, so the quantity of money demanded increases. D

Question 3

In the long run, when money is neutral, which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price level C

Question 4

Use a money supply and demand diagram to answer the following problem: Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

Accepted Answer

The answer of Use a money supply and demand diagram...

Question 5

When the value of money rises, what happens to the number of dollars needed to buy a representative basket of goods?

Accepted Answer

A)   It increases, and so the price level rises.
B)   It increases, and so the price level falls.
C)   It decreases, and so the price level rises.
D)   It decreases, and so the price level falls.

Question 6

If a country had deflation of 3 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

Accepted Answer

A)   The real interest rate would decrease by 2 percentage point.
B)   The real interest rate would increase by 2 percentage point.
C)   The real interest rate would decrease by 4 percentage points.
D)   The real interest rate would increase by 4 percentage points.

Question 7

Which statement best describes the evolution of the price level in Canada?

Accepted Answer

A)   The price level rose at an average annual rate of about 2 percent over the past 70 years.
B)   The price level has increased about 12-fold over the past 70 years.
C)   The price level increased in the 1970s at a rate above the average of the past 70 years.
D)   The price level has never decreased over the past 70 years.

Question 8

Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level and nominal GDP change?

Accepted Answer

A)   The price level and nominal GDP will not change.
B)   The price level will not change but nominal GDP will grow by 10 percent.
C)   The price level will decrease by 10 percent and nominal GDP will stay the same.
D)   The price level and nominal GDP will increase by 10 percent.

Question 9

What can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)   the nominal wage divided by the price level
B)   real output
C)   real interest rates
D)   the price level

Question 10

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

Accepted Answer

The answer of Economists agree that increases in the money...

Question 11

Figure 11-1 
-Refer to Figure 11-1. What happens when the money supply curve shifts from MS1 to MS2?

Accepted Answer

A)   The equilibrium value of money decreases.
B)   The equilibrium price level decreases.
C)   The supply of money decreases.
D)   The demand for goods and services decreases.

Question 12

If the nominal interest rate is 9 percent and the inflation rate is 6 percent, what is the real interest rate?

Accepted Answer

A)   1.5 percent
B)   3 percent
C)   15 percent
D)   45 percent

Question 13

According to the classical dichotomy, what is influenced by monetary factors?

Accepted Answer

A)   real GDP
B)   investment
C)   nominal interest rates
D)   the real wage rate

Question 14

Which statement best describes how the cost of unexpected inflation is distributed?

Accepted Answer

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

Question 15

The country of Aquilonia has a tax system identical to that of Canada. Suppose an Aquilonian bought a parcel of land for $10,000 in 1960 when the price index equalled 100. In 2019, the person sold the land for $100,000, and the price index equalled 500. If the person must pay 20 percent of any capital gain in taxes, what is the after-tax real capital gain (in 2019 dollars) on the land?

Accepted Answer

A)   $6400
B)   $32,000
C)   $62,000
D)   $72,000

Question 16

Tashonna puts money in a savings account at her bank, earning 4.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 2.5 percent. How has the amount of goods Tashonna can buy changed one year later?

Accepted Answer

A)   Tashonna can buy 7 percent more goods.
B)   Tashonna can buy 7 percent less goods.
C)   Tashonna can buy 2 percent more goods.
D)   Tashonna can buy 2 percent less goods.

Question 17

How can people avoid the inflation tax?

Accepted Answer

A)   by reducing savings
B)   by not filing a tax return
C)   by reducing cash holdings
D)   by spending less

Question 18

Which statement best describes the effect of printing money to finance government expenditures on the Canadian economy?

Accepted Answer

A)   It accounts for 10 percent of government revenue.
B)   It accounts for less than 1 percent of government revenue.
C)   Printing money imposes a tax on net borrowers.
D)   Printing money causes the nominal interest rate to decrease.

Question 19

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

Accepted Answer

A)   the Keynes effect
B)   the Hume effect
C)   the Fisher effect
D)   the Ricardian equivalence effect

Question 20

Which statement best describes the effects of an open-market operation undertaken by the Bank of Canada?

Accepted Answer

A)   If the Bank of Canada purchases bonds in the open market, then the money supply shifts right and the price level increases.
B)   If the Bank of Canada sells bonds in the open market, then the money supply shifts right and the price level decreases.
C)   If the Bank of Canada purchases bonds in the open market, then the money supply shifts left and the price level decreases.
D)   If the Bank of Canada sells bonds in the open market, then the money supply shifts left and the price level increases.

Exam 11: Money Growth and Inflation