Question 1

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 per cent to 10 per cent.

Accepted Answer

Inflation and nominal interest...

Question 2

An inflation tax

Accepted Answer

A)  is usually employed by governments with balanced budgets.
B)  None of these answers.
C)  is an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products.
D)  is a tax borne only by people who hold interest bearing savings accounts.
E)  is a tax on people who hold money.F) C) and D)
G) B) and D)

Question 3

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Accepted Answer

A)  Costs due to inflation induced tax distortions.
B)  Arbitrary redistributions of wealth.
C)  Shoeleather costs.
D)  Menu costs.
E)  Costs due to confusion and inconvenience.F) None of the above
G) C) and D)

Question 4

The quantity equation states that

Accepted Answer

A)  Money×real output = velocity×price level.
B)  Money×velocity = price level×real output.
C)  None of these answers.
D)  Money×price level = velocity×real output.E) A) and B)
F) A) and C)

Question 5

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 6

The term hyperinflation refers to

Accepted Answer

A)  the spread of inflation from one country to others.
B)  a decrease in the inflation rate.
C)  a period of very high inflation.
D)  inflation accompanied by a recession.E) A) and D)
F) All of the above

Question 7

Deflation

Accepted Answer

A)  increases incomes and enhances the ability of debtors to pay off their debts.
B)  increases incomes and reduces the ability of debtors to pay off their debts.
C)  decreases incomes and enhances the ability of debtors to pay off their debts.
D)  decreases incomes and reduces the ability of debtors to pay off their debts.E) B) and D)
F) A) and B)

Question 8

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Accepted Answer

A) True 
 B)False

Question 9

In the quantity theory of money

Accepted Answer

A)  prices are rigid.
B)  both velocity of money and real output are variable.
C)  changes in the money supply cause changes in velocity of money.
D)  the velocity of money is assumed to be stable.E) B) and D)
F) B) and C)

Question 10

Economists agree that

Accepted Answer

A)  neither high inflation nor moderate inflation is very costly.
B)  both high and moderate inflation are quite costly.
C)  high inflation is costly, but they disagree about the costs of moderate inflation.
D)  moderate inflation is as costly as high inflation.E) B) and D)
F) None of the above

Question 11

Define each of the symbols and explain the meaning of M×V = P×Y.

Accepted Answer

M is the quantity of money, V is the vel...

Question 12

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha...

Question 13

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs.This is an example of

Accepted Answer

A)  costs due to inflation induced relative price variability, which misallocates resources.
B)  menu costs.
C)  shoeleather costs.
D)  costs due to inflation induced tax distortions.
E)  costs due to confusion and inconvenience.F) B) and C)
G) B) and E)

Question 14

If real output in an economy is 1,000 units of goods per year, the money supply is R300, and each euro is spent 3 times per year, then the average price of goods is

Accepted Answer

A)  R0.90 per unit.
B)  R1.11 per unit.
C)  R1.50 per unit.
D)  R1.33 per unit.E) A) and D)
F) All of the above

Question 15

Suppose an economy produces only ice cream cones.If the price level rises, the value of currency

Accepted Answer

A)  rises, because one unit of currency buys more ice cream cones.
B)  rises, because one unit of currency buys fewer ice cream cones.
C)  falls, because one unit of currency buys more ice cream cones.
D)  falls, because one unit of currency buys fewer ice cream cones.E) C) and D)
F) A) and D)

Question 16

Some economists feel inflation is bad

Accepted Answer

A)  because it reduces real GDP so much.
B)  only if it is persistent.
C)  because it redistributes income arbitrarily.
D)  only if it is anticipated.E) B) and C)
F) All of the above

Question 17

If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

Accepted Answer

A) True 
 B)False

Question 18

An increase in the price level is the same as a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Exam 10: Money Growth and Inflation

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Correct Answer
verified

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs.This is an example of

Correct Answer
verified

Deflation

Correct Answer
verified

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

An inflation tax

Correct Answer
verified

Economists agree that

Correct Answer
verified

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Correct Answer
verified

Some economists feel inflation is bad

Correct Answer
verified

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Correct Answer
verified
The inflation tax refers to the fact tha...
View Answer

If real output in an economy is 1,000 units of goods per year, the money supply is R300, and each euro is spent 3 times per year, then the average price of goods is

Correct Answer
verified

In the quantity theory of money

Correct Answer
verified

An increase in the price level is the same as a decrease in the value of money.

Correct Answer
verified

The quantity equation states that

Correct Answer
verified

Define each of the symbols and explain the meaning of M×V = P×Y.

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 per cent to 10 per cent.

Correct Answer
verified
Inflation and nominal interest...
View Answer

Suppose an economy produces only ice cream cones.If the price level rises, the value of currency

Correct Answer
verified

The term hyperinflation refers to

Correct Answer
verified

If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

Correct Answer
verified

Exam 10: Money Growth and Inflation

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Correct AnswerverifiedShow Answer

Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs.This is an example of

Correct AnswerverifiedShow Answer

Deflation

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

An inflation tax

Correct AnswerverifiedShow Answer

Economists agree that

Correct AnswerverifiedShow Answer

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Correct AnswerverifiedShow Answer

Some economists feel inflation is bad

Correct AnswerverifiedShow Answer

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Correct AnswerverifiedThe inflation tax refers to the fact tha...View AnswerShow Answer

If real output in an economy is 1,000 units of goods per year, the money supply is R300, and each euro is spent 3 times per year, then the average price of goods is

Correct AnswerverifiedShow Answer

In the quantity theory of money

Correct AnswerverifiedShow Answer

An increase in the price level is the same as a decrease in the value of money.

Correct AnswerverifiedShow Answer

The quantity equation states that

Correct AnswerverifiedShow Answer

Define each of the symbols and explain the meaning of M×V = P×Y.

Correct AnswerverifiedM is the quantity of money, V is the vel...View AnswerShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold.What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 per cent to 10 per cent.

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

Suppose an economy produces only ice cream cones.If the price level rises, the value of currency

Correct AnswerverifiedShow Answer

The term hyperinflation refers to

Correct AnswerverifiedShow Answer

If the money supply is R500, real output is 2,500 units, and the average price of a unit of real output is R2, the velocity of money is 10.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The inflation tax refers to the fact tha...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Correct Answer
verified
Inflation and nominal interest...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified