Question 1

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)  dichotomous variables. 
B)  nominal variables. 
C)  classical variables. 
D)  real variables.

Question 2

The U.S.Treasury Department issues inflation-indexed bonds.What are inflation-indexed bonds and why are they important?

Accepted Answer

The answer of The U.S.Treasury Department issues inflation-indexed bonds.What are...

Question 3

The nominal interest rate is 4.5 percent and the inflation rate is 0.9 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 4

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.
the Fed increases the money supply.
b.
people decide to demand less money at each value of money.

Accepted Answer

The answer of Using separate graphs,demonstrate what happens to the...

Question 5

You bought some shares of stock and,over the next year,the price per share increased by 5 percent and the price level increased by 8 percent.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.

Question 6

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 7

The inflation tax

Accepted Answer

A)  is an alternative to income taxes and government borrowing. 
B)  taxes most those who hold the most money. 
C)  is the revenue created when the government prints money. 
D)  All of the above are correct.

Question 8

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.

Question 9

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10.You compute the price of jeans relative to tee-shirts.

Accepted Answer

A)  The dollar price of jeans and the relative price of jeans are both nominal variables. 
B)  The dollar price of jeans and the relative price of jeans are both real variables. 
C)  The dollar price of jeans is a nominal variable;the relative price of jeans is a real variable. 
D)  The dollar price of jeans is a real variable;the relative price of jeans is a nominal variable.

Question 10

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 2007 the relevant money-supply curve was the one labeled MS1.At the end of 2008 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 2008?

Accepted Answer

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

Question 11

When the money market is drawn with the value of money on the vertical axis,if the Fed sells bonds then

Accepted Answer

A)  the money supply and the price level increase. 
B)  the money supply and the price level decrease. 
C)  the money supply increases and the price level decreases. 
D)  the money supply increases and the price level increases.

Question 12

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 13

Banks advertise

Accepted Answer

A)  the real interest rate,which is how fast the dollar value of savings grows. 
B)  the real interest rate,which is how fast the purchasing power of savings grows. 
C)  the nominal interest rate,which is how fast the dollar value of savings grows. 
D)  the nominal interest rate,which is how fast the purchasing power of savings grows.

Question 14

Whitney puts money in a savings account at her bank earning 3.5 percent.One year later she takes her money out and notes that while her money was earning interest,prices rose 1.5 percent.Whitney earned a nominal interest rate of

Accepted Answer

A)  3.5 percent and a real interest rate of 5 percent. 
B)  3.5 percent and a real interest rate of 2 percent. 
C)  5 percent and a real interest rate of 3.5 percent 
D)  5 percent and a real interest rate of 2 percent

Question 15

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)  the value of money. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  the money supply.

Question 16

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)  affect both nominal and real variables. 
B)  affect neither nominal nor real variables. 
C)  affect nominal variables,but not real variables. 
D)  do not affect nominal variables,but do affect real variables.

Question 17

When inflation rises,firms make

Accepted Answer

A)  more frequent price changes.This raises their menu costs. 
B)  more frequent price changes.This reduces their menu costs. 
C)  less frequent price changes.This raises their menu costs. 
D)  less frequent price changes.This reduces their menu costs.

Question 18

When the money market is drawn with the value of money on the vertical axis,the money demand curve slopes

Accepted Answer

A)  upward,because at higher prices people want to hold more money. 
B)  downward,because at higher prices people want to hold more money. 
C)  downward,because at higher price people want to hold less money. 
D)  upward,because at higher prices people want to hold less money.

Question 19

Katarina puts money into an account.One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Accepted Answer

A)  The nominal interest rate was 8 percent and the inflation rate was 6 percent. 
B)  The nominal interest rate was 6 percent and the inflation rate was 4 percent. 
C)  The nominal interest rate was 4 percent and the inflation rate was 2 percent. 
D)  None of the above is correct.

Question 20

Suppose one year ago the price index was 120 and Mark purchased $20,000 worth of bonds.One year later the price index is 126.Mark redeems his bonds for $22,250 and is in a 40 percent tax bracket.What is Mark's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)  4.3 percent 
B)  3.1 percent 
C)  1.8 percent 
D)  1.2 percent

Exam 30: Money Growth and Inflation