Question 1

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A) mean that only real interest earnings are taxed. 
B) mean an end to taxing capital gains. 
C) mean an increase in average tax rates. 
D) All of the above are correct.

Question 2

U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.

Accepted Answer

A) True 
 B)False

Question 3

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A) both the classical dichotomy and the quantity theory of money. 
B) the classical dichotomy, but not the quantity theory of money. 
C) the quantity theory of money, but not the classical dichotomy. 
D) neither the classical dichotomy nor the quantity theory of money.

Question 4

The nominal interest rate is 4.5 percent and the inflation rate is .9 percent.What is the real interest rate?

Accepted Answer

A) 5.4 percent 
B) 5 percent 
C) 4.1 percent 
D) 3.6 percent

Question 5

According to the quantity equation if P = 4 and Y= 800,which of the following pairs could M and V be?

Accepted Answer

A) 800, 4 
B) 600, 3 
C) 400, 2 
D) 200, 1

Question 6

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.

Question 7

The inflation tax falls mostly heavily on

Accepted Answer

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

Question 8

Arnold puts money into an account.One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods.

Accepted Answer

A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. 
B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. 
C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. 
D) None of the above is correct.

Question 9

Your boss gives you an increase in the number of dollars you earn per hour.This increase in pay makes

Accepted Answer

A) your nominal wage increase.If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. 
B) your nominal wage increase.If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. 
C) your real wage increase.If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. 
D) your real wage decrease.If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

Question 10

Suppose that over some period the money supply tripled,velocity fell by half,and real GDP doubled.According to the quantity equation the price level is now

Accepted Answer

A) 6 times its old value. 
B) 3 times its old value. 
C) 1.5 times its old value. 
D) .75 times its old value

Question 11

In recent years Venezuela and Russia have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The answer of In recent years Venezuela and Russia have...

Question 12

If money is neutral and velocity is stable,an increase in the money supply creates a proportional increase in

Accepted Answer

A) real output only. 
B) nominal output only. 
C) the price level only. 
D) Both the price level and nominal output.

Question 13

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

Accepted Answer

A) increases the price level and the value of money. 
B) increases the price level and decreases the value of money. 
C) decreases the price level and increases the value of money. 
D) decreases the price level and the value of money.

Question 14

When the money market is drawn with the value of money on the vertical axis,as the price level increases,the value of money

Accepted Answer

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

Question 15

The supply of money is determined by

Accepted Answer

A) the price level. 
B) the Treasury and Congressional Budget Office. 
C) the Federal Reserve System. 
D) the demand for money.

Question 16

The quantity theory of money

Accepted Answer

A) is a fairly recent addition to economic theory. 
B) can explain both moderate inflation and hyperinflation. 
C) argues that inflation is caused by too little money in the economy. 
D) All of the above are correct.

Question 17

Marta lends money at a fixed interest rate and then inflation rises more than expected.The real interest rate she earns is

Accepted Answer

A) higher than she'd expected, and the real value of the loan rises. 
B) higher than she'd expected, and the real value of the loan falls. 
C) lower than she'd expected, and the real value of the loan rises. 
D) lower then she'd expected, and the real value of the loan falls.

Question 18

If the inflation rate falls,people are likely to

Accepted Answer

A) change prices more frequently and go to the bank more frequently. 
B) change prices more frequently and go to the bank less frequently. 
C) change prices less frequently and go to the bank less frequently. 
D) change prices less frequently and go the bank more frequently.

Question 19

From the early 1980s through the early 1990s

Accepted Answer

A) both inflation and nominal interest rates rose. 
B) both inflation and nominal interest rates fell. 
C) the inflation rate fell and the nominal interest rate rose. 
D) the inflation rate rose and the nominal interest rate fell.

Question 20

Interest rates adjusted for the effects of inflation

Accepted Answer

A) and inflation are nominal variables. 
B) and inflation are real variables. 
C) are real variables; inflation is a nominal variable. 
D) are nominal variables; inflation is a real variable.

Exam 30: Money Growth and Inflation