Question 1

The consumer price index increases from 200 to 208. What is the inflation rate?

Accepted Answer

The answer of The consumer price index increases from 200...

Question 2

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)   nominal and real GDP would fall by 7 percent.
B)   nominal GDP would fall by 7 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would fall by 7 percent.
D)   neither nominal GDP nor real GDP would change.E) A) and C)
F) C) and D)

Question 3

Which of the following is not implied by the quantity equation?

Accepted Answer

A)   If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output.
B)   If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level.
C)   With constant money supply and output, an increase in velocity creates an increase in the price level.
D)   With constant money supply and velocity, an increase in output creates a proportional increase in the price level.E) All of the above
F) C) and D)

Question 4

If the value of a dollar falls, then the quantity of money demanded

Accepted Answer

A)   rises, meaning people want to hold more of their wealth in a liquid form.
B)   rises, meaning people desire to work more so their income rises.
C)   falls, meaning people want to hold less of their wealth in a liquid form.
D)   falls, meaning people want to work less so their income falls.E) A) and D)
F) C) and D)

Question 5

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.E) A) and C)
F) A) and D)

Question 6

Which of the following is accurate?

Accepted Answer

A)   Monetary policy is neutral in both the short run and the long run.
B)   Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
C)   Monetary policy has profound effects on real variables in both the short run and the long run.
D)   Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.E) B) and C)
F) A) and D)

Question 7

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)   increase employment.
B)   increase the price level.
C)   increase the incentive to save.
D)   increase the real interest rate.E) None of the above
F) C) and D)

Question 8

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Question 9

People can reduce the inflation tax by

Accepted Answer

A)   reducing savings.
B)   increasing deductions on their income tax.
C)   reducing cash holdings.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 10

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

The answer of One year ago Sam purchased bonds for...

Question 11

The costs of changing price tags and price listings are known as

Accepted Answer

A)   inflation-induced tax distortions.
B)   relative-price variability costs.
C)   shoeleather costs.
D)   menu costs.E) A) and D)
F) A) and C)

Question 12

As the Consumer Price Index increases, the value of money

Accepted Answer

A)   falls, so people hold more money to buy the goods and services they want.
B)   falls, so people hold less money to buy the goods and services they want.
C)   rises, so people hold more money to buy the goods and services they want.
D)   rises, so people hold less money to buy the goods and services they want.E) All of the above
F) B) and C)

Question 13

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Accepted Answer

A)   higher than she had expected, and the real value of the loan is higher than she had expected.
B)   higher than she had expected, and the real value of the loan is lower than she had expected.
C)   lower than she had expected, and the real value of the loan is higher than she had expected.
D)   lower then she had expected, and the real value of the loan is lower than she had expected.E) B) and C)
F) B) and D)

Question 14

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Question 15

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)   deflation; 2 percent
B)   deflation; 10 percent
C)   inflation; 2 percent
D)   inflation; 10 percentE) B) and C)
F) A) and C)

Question 16

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

Accepted Answer

A)   3.33.
B)   0.83.
C)   1.20.
D)   13.33.E) A) and C)
F) B) and C)

Question 17

The theory that most economists rely on to explain inflation is called the .

Accepted Answer

The answer of The theory that most economists rely on...

Question 18

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)   decreased. Other things the same, a decrease in velocity decreases the price level.
B)   decreased. Other things the same, a decrease in velocity increases the price level.
C)   increased. Other things the same, an increase in velocity decreases the price level.
D)   increased. Other things the same, an increase in velocity increases the price level.E) C) and D)
F) A) and D)

Question 19

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.E) B) and C)
F) A) and D)

Question 20

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as .

Accepted Answer

The answer of During hyperinflations, people desire to hold less...

Exam 12: Money Growth and Inflation

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Correct AnswerverifiedShow Answer

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

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The costs of changing price tags and price listings are known as

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If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

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One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

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People can reduce the inflation tax by

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One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

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The theory that most economists rely on to explain inflation is called the .

Correct AnswerverifiedShow Answer

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

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During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

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Which of the following is not implied by the quantity equation?

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According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

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As the Consumer Price Index increases, the value of money

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The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

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During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as .

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Which of the following is accurate?

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Monetary neutrality implies that an increase in the quantity of money will

Correct AnswerverifiedShow Answer

The consumer price index increases from 200 to 208. What is the inflation rate?

Correct AnswerverifiedShow Answer

If the value of a dollar falls, then the quantity of money demanded

Correct AnswerverifiedShow Answer

The classical dichotomy argues that changes in the money supply

Correct AnswerverifiedShow Answer

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