Question 1

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 2

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 3

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 4

Most economists believe the principle of monetary neutrality is

Accepted Answer

A)   relevant to both the short and long run.
B)   irrelevant to both the short and long run.
C)   mostly relevant to the short run.
D)   mostly relevant to the long run.E) A) and D)
F) All of the above

Question 5

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

Accepted Answer

nominal va...

Question 6

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

Accepted Answer

A)   nominal and real GDP would rise by 5 percent.
B)   nominal GDP would rise by 5 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would rise by 5 percent.
D)   neither nominal GDP nor real GDP would change.E) A) and C)
F) A) and B)

Question 7

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 8

A decrease in the money supply creates an excess

Accepted Answer

A)   supply of money that is eliminated by rising prices.
B)   supply of money that is eliminated by falling prices.
C)   demand for money that is eliminated by rising prices.
D)   demand for money that is eliminated by falling prices.E) None of the above
F) A) and B)

Question 9

Over the past 80 years, prices in the U.S. have risen on average about

Accepted Answer

A)   2 percent per year.
B)   4 percent per year.
C)   3.6 percent per year.
D)   6 percent per year.E) B) and D)
F) C) and D)

Question 10

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Accepted Answer

A)   the price level grew at about the same rate as the money supply.
B)   the price level grew at a much faster rate than the money supply.
C)   the price level grew at a much slower rate than the money supply.
D)   the inflation rate and the money supply growth rate do not appear to be related.E) A) and B)
F) All of the above

Question 11

Inflation is problematic if

Accepted Answer

A)   it is less than the percentage increase in nominal income.
B)   it is less than the nominal return on saving.
C)   it equals the growth rate of real GDP in the long run.
D)   it distorts relative prices, causing a misallocation of resources.E) A) and B)
F) A) and C)

Question 12

Wealth is redistributed from debtors to creditors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.E) None of the above
F) All of the above

Question 13

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Accepted Answer

debtors/bo...

Question 14

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Accepted Answer

A)   the price level would fall, so the value of money would fall.
B)   the price level would fall, so the value of money would rise.
C)   the price level would rise, so the value of money would fall.
D)   the price level would rise, so the value of money would rise.E) None of the above
F) All of the above

Question 15

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 percentE) None of the above
F) A) and C)

Question 16

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 17

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

Accepted Answer

A)   will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
B)   will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.
C)   will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
D)   will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.E) A) and D)
F) None of the above

Question 18

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 4 percent; the tax rate is 5 percent.
B)   Inflation is 3 percent; the tax rate is 20 percent.
C)   Inflation is 2 percent; the tax rate is 30 percent.
D)   The after-tax real interest rate is the same for all of the above.E) B) and C)
F) B) and D)

Question 19

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Accepted Answer

A) True 
 B)False

Question 20

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Accepted Answer

A)   the money supply must have increased, perhaps because the Fed bought bonds.
B)   the money supply must have increased, perhaps because the Fed sold bonds.
C)   the money supply must have decreased, perhaps because the Fed bought bonds.
D)   the money supply must have decreased, perhaps because the Fed sold bonds.E) B) and C)
F) All of the above

Exam 12: Money Growth and Inflation

The quantity equation is M x V = P x Y.

Correct AnswerverifiedShow Answer

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Correct AnswerverifiedShow Answer

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Correct AnswerverifiedShow Answer

Wealth is redistributed from debtors to creditors when inflation was expected to be

Correct AnswerverifiedShow Answer

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Correct AnswerverifiedShow Answer

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Correct Answerverifieddebtors/bo...View AnswerShow Answer

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

Correct AnswerverifiedShow Answer

Over the past 80 years, prices in the U.S. have risen on average about

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A decrease in the money supply creates an excess

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Correct AnswerverifiedShow Answer

Shoeleather costs and menu costs are both costs of anticipated inflation.

Correct AnswerverifiedShow Answer

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

Correct Answerverifiednominal va...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Inflation is problematic if

Correct AnswerverifiedShow Answer

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Correct AnswerverifiedShow Answer

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Correct AnswerverifiedShow Answer

Most economists believe the principle of monetary neutrality is

Correct AnswerverifiedShow Answer

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Correct AnswerverifiedShow Answer

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During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.

Correct Answer
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debtors/bo...
View Answer

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's aftertax real rate of interest

Correct Answer
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Correct Answer
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nominal va...
View Answer

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Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

Correct Answer
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