Question 1

People go to the bank more frequently to reduce currency holdings when inflation is high,the cost of their time to do this would be counted as

Accepted Answer

A)  inflation-induced tax distortions.
B)  relative-price variability costs.
C)  shoeleather costs.
D)  menu costs.E) All of the above
F) None of the above

Question 2

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate rises,then

Accepted Answer

A)  both the nominal and the real interest rate rise.
B)  neither the nominal nor the real interest rate rise.
C)  the nominal interest rate rises, but the real interest rate does not.
D)  the real interest rate rises, but the nominal interest rate does not.E) A) and B)
F) A) and C)

Question 3

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts.T...

Question 4

If the economy unexpectedly went from inflation to deflation,

Accepted Answer

A)  both debtors and creditors would all have reduced real wealth.
B)  both debtors and creditors would all have increased real wealth.
C)  debtors would gain at the expense of creditors.
D)  creditors would gain at the expense of debtors.E) A) and B)
F) A) and C)

Question 5

Inflation distorts savings when the nominal rather than the real interest rate is taxed.

Accepted Answer

A) True 
 B)False

Question 6

According to the quantity equation,if P = 2,Y = 6,000,and M= 3,000,then V =

Accepted Answer

A)  1/2.
B)  1.
C)  4.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 7

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,what is the real interest rate?

Accepted Answer

A)  7 percent
B)  5 percent
C)  3 percent
D)  3/5 percentE) A) and D)
F) A) and C)

Question 8

There was hyperinflation

Accepted Answer

A)  during 1880-1896 in the United States.
B)  in post-World War I Germany.
C)  during the 1970s in the United States.
D)  All of the above are correct.E) B) and D)
F) None of the above

Question 9

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Accepted Answer

A)  velocity concept.
B)  Fisher effect.
C)  classical dichotomy.
D)  Mankiw effect.E) All of the above
F) None of the above C

Question 10

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

Accepted Answer

A)  the real interest rate
B)  real GDP
C)  the real wage
D)  None of the above increases.E) None of the above
F) A) and D)

Question 11

For a given real interest rate,an increase in inflation makes the after-tax real interest rate

Accepted Answer

A)  decrease, which encourages savings.
B)  decrease, which discourages savings.
C)  increase, which encourages savings.
D)  increase, which discourages savings.E) A) and B)
F) All of the above

Question 12

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

Accepted Answer

A)  the inflation rate and the nominal interest rate by the same percentage points.
B)  nominal interest rates but by less than the percentage point increase in the inflation rate.
C)  the inflation rate but not the nominal interest.
D)  neither the inflation rate nor the nominal interest rate.E) B) and C)
F) A) and D)

Question 13

Which of the following inflation costs matter even if actual inflation and expected inflation are the same?

Accepted Answer

A)  menu costs
B)  inflation tax
C)  shoeleather costs
D)  All of the above are correct.E) None of the above
F) B) and C) D

Question 14

Use the figure below for the following questions.
Figure 30-1
 
-Refer to Figure 30-1.If the money supply is MS₂ and the value of money is 2,

Accepted Answer

A)  the value of money is less than its equilibrium level.
B)  the price level is higher than its equilibrium level.
C)  the quantity of money demanded is greater than the quantity of money supplied.
D)  the quantity of money supplied is greater than the quantity of money demanded.E) C) and D)
F) A) and C)

Question 15

Suppose that the money supply tripled,but at the same time velocity fell by half and real GDP was unchanged.According to the quantity equation the price level

Accepted Answer

A)  is 1.5 times its old value.
B)  is 3 times its old value.
C)  is 6 times its old value.
D)  is the same as its old value.E) All of the above
F) None of the above

Question 16

Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds,the...

Question 17

Sally purchased one share of Stryker stock for $200 in year 1 and sold that share in year 2 for $400.The inflation rate between year 1 and year 2 was 50%.The tax on nominal capital gains is 50%.What was the tax on Sally's capital gain?

Accepted Answer

A)  $50
B)  $75
C)  $100
D)  $200E) A) and B)
F) B) and D)

Question 18

Menu costs refers to

Accepted Answer

A)  resources used by people to maintain lower money holdings when inflation is high.
B)  resources used to price shop during times of high inflation.
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation.
D)  the cost of more frequent price changes induced by higher inflation.E) A) and B)
F) C) and D)

Question 19

According to the classical dichotomy,which of the following is influenced by monetary factors?

Accepted Answer

A)  real GDP
B)  unemployment
C)  nominal interest rates
D)  All of the above are correct.E) B) and C)
F) All of the above

Question 20

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

Accepted Answer

A)  money demand shifts right and decreases if money supply shifts right.
B)  money demand shifts right and decreases if money supply shifts left.
C)  money demand shifts left and decreases if money supply shifts right.
D)  money demand shifts left and decreases if money supply shifts left.E) B) and D)
F) B) and C) D

Exam 30: Money Growth and Inflation

People go to the bank more frequently to reduce currency holdings when inflation is high,the cost of their time to do this would be counted as

Correct AnswerverifiedShow Answer

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate rises,then

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts.T...View AnswerShow Answer

If the economy unexpectedly went from inflation to deflation,

Correct AnswerverifiedShow Answer

Inflation distorts savings when the nominal rather than the real interest rate is taxed.

Correct AnswerverifiedShow Answer

According to the quantity equation,if P = 2,Y = 6,000,and M= 3,000,then V =

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,what is the real interest rate?

Correct AnswerverifiedShow Answer

There was hyperinflation

Correct AnswerverifiedShow Answer

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

For a given real interest rate,an increase in inflation makes the after-tax real interest rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following inflation costs matter even if actual inflation and expected inflation are the same?

Correct AnswerverifiedD

Use the figure below for the following questions. Figure 30-1 -Refer to Figure 30-1.If the money supply is MS₂ and the value of money is 2,

Correct AnswerverifiedShow Answer

Suppose that the money supply tripled,but at the same time velocity fell by half and real GDP was unchanged.According to the quantity equation the price level

Correct AnswerverifiedShow Answer

Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds,the...View AnswerShow Answer

Sally purchased one share of Stryker stock for $200 in year 1 and sold that share in year 2 for $400.The inflation rate between year 1 and year 2 was 50%.The tax on nominal capital gains is 50%.What was the tax on Sally's capital gain?

Correct AnswerverifiedShow Answer

Menu costs refers to

Correct AnswerverifiedShow Answer

According to the classical dichotomy,which of the following is influenced by monetary factors?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedD

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Most had large nominal debts.T...
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C

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D

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When the Fed sells government bonds,the...
View Answer

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D