Question 1

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Accepted Answer

A)   $250.
B)   $25,000.
C)   $1,000.
D)   $6,250.E) A) and B)
F) A) and C)

Question 2

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)   either a rise in output or a rise in the rate at which money changes hands.
B)   either a rise in output or a fall in the rate at which money changes hands.
C)   either a fall in output or a rise in the rate at which money changes hands.
D)   either a fall in output or a fall in the rate at which money changes hands.E) All of the above
F) B) and D)

Question 3

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Accepted Answer

A)   3.5 percent and a real interest rate of 5 percent.
B)   3.5 percent and a real interest rate of 2 percent.
C)   5 percent and a real interest rate of 3.5 percent
D)   5 percent and a real interest rate of 2 percentE) B) and D)
F) A) and B)

Question 4

In which case below is the real interest rate the highest?

Accepted Answer

A)   the nominal interest rate = 1% and inflation = 3%
B)   the nominal interest rate = 6% and inflation = 4%
C)   the nominal interest rate = 2% and inflation = -1%
D)   the nominal interest rate = 2% and inflation = 1%E) A) and D)
F) A) and C)

Question 5

Velocity is computed as the

Accepted Answer

A)   price level times real GDP divided by the money supply.
B)   price level times the money supply divided by real GDP.
C)   real GDP times the money supply divided by the price level.
D)   real GDP times the money supply divided by the rate at which money changes hands.E) A) and B)
F) A) and C)

Question 6

Suppose the money supply tripled, but at the same time velocity doubled 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) A) and B)
F) B) and C)

Question 7

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

Question 8

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

Accepted Answer

A)   Inflation is 2.5 percent; the tax rate is 25 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) C) and D)
F) A) and B)

Question 9

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 10

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Accepted Answer

rapid money supply g...

Question 11

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

Question 12

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)   the nominal wage.
B)   real output.
C)   real interest rates.
D)   the real wage.E) A) and B)
F) None of the above

Question 13

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)   is easier to impose.
B)   reduces inflation.
C)   falls mainly on high-income individuals.
D)   reduces the real cost of government expenditure.E) A) and D)
F) B) and C)

Question 14

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) All of the above
F) A) and C)

Question 15

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)   spend more time looking for bargains.
B)   spend less time looking for bargains.
C)   hold more money.
D)   hold less money.E) A) and B)
F) A) and C)

Question 16

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) None of the above
F) A) and B)

Question 17

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 18

As the price level rises, the value of money

Accepted Answer

A)   increases, so people must hold less money to purchase goods and services.
B)   increases, so people must hold more money to purchase goods and services.
C)   decreases, so people must hold more money to purchase goods and services.
D)   decreases, so people must hold less money to purchase goods and services.E) B) and D)
F) A) and B)

Question 19

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci...

Question 20

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) A) and B)
F) B) and D)

Exam 30: Money Growth and Inflation

As the price level rises, the value of money

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Economists agree that

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Which of the following can a country increase in the long run by increasing its money growth rate?

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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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According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

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

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Shoeleather costs arise when higher inflation rates induce people to

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If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Correct Answerverifiedrapid money supply g...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Correct AnswerverifiedShow Answer

Velocity is computed as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Correct AnswerverifiedShow Answer

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Correct AnswerverifiedA decrease in veloci...View AnswerShow Answer

Governments may prefer an inflation tax to some other type of tax because the inflation tax

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The classical dichotomy argues that changes in the money supply

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In which case below is the real interest rate the highest?

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In the long run inflation is explained by . For countries that had hyperinflation this source of inflation arose primarily because the government .

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rapid money supply g...
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A decrease in veloci...
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