Question 1

If velocity and output were nearly constant, then

Accepted Answer

A)  the inflation rate would be much higher than the money supply growth rate.
B)  the inflation rate would be about the same as the money supply growth rate.
C)  the inflation rate would be much lower than the money supply growth rate.
D)  any of the above would be possible.E) B) and C)
F) B) and D)

Question 2

Some countries have experienced an extraordinarily high rate of inflation known as _____. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _____.

Accepted Answer

hyperinfla...

Question 3

If the price level this year was 140 and was 135 last year, what was the inflation rate to the nearest decimal?

Accepted Answer

The answer of If the price level this year was...

Question 4

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Accepted Answer

A)  spend more so the value of a dollar rises.
B)  spend more so the value of a dollar falls.
C)  spend less so the value of a dollar rises.
D)  spend less so the value of a dollar falls.E) B) and D)
F) None of the above

Question 5

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Accepted Answer

A)  1/4
B)  2
C)  4
D)  1E) B) and D)
F) All of the above

Question 6

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Accepted Answer

The answer of You earn a nominal return of 6%...

Question 7

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) A) and B)
F) B) and C)

Question 8

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 9

When inflation causes relative-price variability,

Accepted Answer

A)  consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
B)  consumer decisions are distorted, but markets are still able to efficiently allocate factors of production.
C)  consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired.
D)  consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.E) A) and B)
F) All of the above

Question 10

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

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

Question 11

Monetary neutrality means that a change in the money supply

Accepted Answer

A)  does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run.
B)  does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.
C)  does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run.
D)  does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.E) A) and B)
F) All of the above

Question 12

If the number of dollars needed to buy a representative basket of goods falls, the price level

Accepted Answer

A)  falls, so the value of money falls.
B)  falls, so the value of money rises.
C)  rises, so the value of money falls.
D)  rises, so the value of money rises.E) All of the above
F) A) and B)

Question 13

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Accepted Answer

increases, a movemen...

Question 14

The supply of money increases when

Accepted Answer

A)  the value of money increases.
B)  the interest rate increases.
C)  the Federal Reserve purchases bonds.
D)  velocity increases.E) B) and D)
F) A) and B)

Question 15

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)  7 percent
B)  2.5 percent
C)  10 percent
D)  3 percentE) A) and B)
F) A) and C)

Question 16

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  1.5 percent.
B)  2.5 percent.
C)  5.0 percent.
D)  4.5 percent.E) B) and D)
F) C) and D)

Question 17

You observe people going to the bank more frequently. Other things the same, this could result from

Accepted Answer

A)  an increase in inflation which increases money demand.
B)  an increase in inflation which reduces money demand.
C)  a decrease in inflation which increases money demand.
D)  a decrease in inflation which reduces money demand.E) A) and C)
F) C) and D)

Question 18

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Accepted Answer

A)  and a price index are both real variables.
B)  and a price index are both nominal variables.
C)  are real variables, and a price index is a nominal variable.
D)  are nominal variables, and a price index is a real variableE) B) and C)
F) A) and D)

Question 19

Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money she holds?

Accepted Answer

A)  $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
B)  $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
C)  15 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)  15 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) B) and D)
F) C) and D)

Question 20

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

Correct AnswerverifiedShow Answer

If the price level this year was 140 and was 135 last year, what was the inflation rate to the nearest decimal?

Correct AnswerverifiedShow Answer

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Correct AnswerverifiedShow Answer

You observe people going to the bank more frequently. Other things the same, this could result from

Correct AnswerverifiedShow Answer

If velocity and output were nearly constant, then

Correct AnswerverifiedShow Answer

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Correct AnswerverifiedShow Answer

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

Correct AnswerverifiedShow Answer

Some countries have experienced an extraordinarily high rate of inflation known as _____. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _____.

Correct Answerverifiedhyperinfla...View AnswerShow Answer

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Correct AnswerverifiedShow Answer

If the number of dollars needed to buy a representative basket of goods falls, the price level

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Correct AnswerverifiedShow Answer

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Correct AnswerverifiedShow Answer

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Correct Answerverifiedincreases, a movemen...View AnswerShow Answer

Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

The supply of money increases when

Correct AnswerverifiedShow Answer

As the Consumer Price Index increases, the value of money

Correct AnswerverifiedShow Answer

When inflation causes relative-price variability,

Correct AnswerverifiedShow Answer

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Some countries have experienced an extraordinarily high rate of inflation known as _. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _.

Correct Answer
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hyperinfla...
View Answer

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A decrease in the value of money the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as __.

Correct Answer
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increases, a movemen...
View Answer

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