Question 1

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)   Friedman Effect.
B)   Hume Effect.
C)   Fisher Effect.
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 2

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 velo...

Question 3

When the value of money is on the vertical axis,the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 4

Jennifer took out a fixed-interest-rate loan when the CPI was 100.She expected the CPI to increase to 103 but it actually increased to 105.The real interest rate she paid 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) A) and B)
F) None of the above

Question 5

You find that to attract a sufficient number of workers you have to pay them more dollars.Given the price of your output you determine you are paying your workers more in goods than before.Which of the following has risen?

Accepted Answer

A)   The real and nominal value of the wages you pay.
B)   The real but not the nominal value of wages you pay.
C)   The nominal but not the real value of the wages you pay.
D)   Neither the real nor the nominal value of the wages you pay.E) B) and C)
F) None of the above

Question 6

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A)   Increases in the price level can be created by increases in money demand.
B)   Nominal incomes tend to rise at the same time that the price level is rising.
C)   As the price level rises,the value of a dollar falls.
D)   Inflation only changes nominal variables.E) B) and C)
F) All of the above

Question 7

According to the quantity theory of money,a 3 percent increase in the money supply

Accepted Answer

A)   causes the price level to rise by 3 percent.
B)   causes the price level to rise by less than 3 percent.
C)   leaves the price level unchanged.
D)   causes the price level to fall by 3 percent.E) A) and D)
F) None of the above

Question 8

Which of the following statements about U.S.inflation is not correct?

Accepted Answer

A)   Low inflation was viewed as a triumph of President Carter's economic policy.
B)   There were long periods in the nineteenth century during which prices fell.
C)   The U.S.public has viewed inflation rates of even 7 percent as a major economic problem.
D)   The U.S.inflation rate has varied over time,but international data show even more variation.E) None of the above
F) B) and C)

Question 9

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Accepted Answer

A)   a real interest rate of 2.5 percent and an inflation rate of 2 percent
B)   a real interest rate of 4 percent and an inflation rate of 11 percent
C)   a real interest rate of 6 percent and an inflation rate of 1 percent
D)   a real interest rate of 5.5 percent and an inflation rate of 3 percentE) B) and D)
F) A) and B)

Question 10

Sam deposits money into an account with a nominal interest rate of 4 percent.He expects inflation to be 1.5 percent.His tax rate is 20 percent.Sam's after-tax real rate of interest

Accepted Answer

A)   will be 2 percent if inflation turns out to be 1.5 percent;it will be higher if inflation turns out to be lower than 1.5 percent.
B)   will be 2 percent if inflation turns out to be 1.5 percent;it will be lower if inflation turns out to be lower than 1.5 percent.
C)   will be 1.7 percent if inflation turns out to be 1.5 percent;it will be higher if inflation turns out to be lower than 1.5 percent.
D)   will be 1.7 percent if inflation turns out to be 1.5 percent;it will be lower if inflation turns out to be lower than 1.5 percent.E) None of the above
F) C) and D)

Question 11

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A)   mean that only real interest earnings are taxed.
B)   mean an end to taxing capital gains.
C)   mean an increase in average tax rates.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 12

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 13

When the money market is drawn with the value of money on the vertical axis,if the value of money is below the equilibrium level,

Accepted Answer

A)   the price level will rise.
B)   the value of money will rise.
C)   money demand will shift leftward.
D)   money demand will shift rightward.E) A) and B)
F) B) and D)

Question 14

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

Question 15

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

Accepted Answer

A)   both the price level and real GDP would rise by 5 percent.
B)   the price level would rise by 5 percent and real GDP would be unchanged.
C)   the price level would be unchanged and real GDP would rise by 5 percent.
D)   both the price level and real GDP would be unchanged.E) A) and B)
F) A) and D)

Question 16

Figure 17-1 1 to MS2, A)  the equilibrium value of money decreases. B)  the equilibrium price level decreases. C)  the supply of money has decreased. D)  the demand for goods and services will decrease." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1.When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the equilibrium value of money decreases.
B)   the equilibrium price level decreases.
C)   the supply of money has decreased.
D)   the demand for goods and services will decrease.E) B) and C)
F) A) and C)

Question 17

When inflation rises,people tend to go to the bank

Accepted Answer

A)   more often,giving rise to menu costs.
B)   more often,giving rise to shoeleather costs.
C)   less often,giving rise to redistribution costs.
D)   less often,thereby lessening the severity of the inflation tax.E) All of the above
F) B) and D)

Question 18

When the money market is drawn with the value of money on the vertical axis,if there is a surplus of money then

Accepted Answer

A)   the value of money rises which will make people desire to hold more money.
B)   the value of money rises which will make people desire to hold less money.
C)   the value of money falls which will make people desire to hold more money.
D)   the value of money falls which will make people desire to hold less money.E) C) and D)
F) B) and D)

Question 19

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,a...

Question 20

If V and M are constant and Y doubles,the quantity equation implies that the price level

Accepted Answer

A)   falls to half its original level.
B)   does not change.
C)   doubles.
D)   more than doubles.E) B) and C)
F) A) and C)

Exam 30: Money Growth and Inflation

Indexing the tax system to take into account the effects of inflation would by itself

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

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Correct AnswerverifiedShow Answer

When inflation rises,people tend to go to the bank

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The inflation rate is measured as the percentage change in a price index.

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Sam deposits money into an account with a nominal interest rate of 4 percent.He expects inflation to be 1.5 percent.His tax rate is 20 percent.Sam's after-tax real rate of interest

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According to the quantity theory of money,a 3 percent increase in the money supply

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

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

When the value of money is on the vertical axis,the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Correct AnswerverifiedShow Answer

Which of the following statements about U.S.inflation is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 17-1 -Refer to Figure 17-1.When the money supply curve shifts from MS1 to MS2,

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,if the value of money is below the equilibrium level,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,if there is a surplus of money then

Correct AnswerverifiedShow Answer

Jennifer took out a fixed-interest-rate loan when the CPI was 100.She expected the CPI to increase to 103 but it actually increased to 105.The real interest rate she paid is

Correct AnswerverifiedShow Answer

If V and M are constant and Y doubles,the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

You find that to attract a sufficient number of workers you have to pay them more dollars.Given the price of your output you determine you are paying your workers more in goods than before.Which of the following has risen?

Correct AnswerverifiedShow Answer

Which of the following helps to explain why the inflation fallacy is a fallacy?

Correct AnswerverifiedShow 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 .

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M is the quantity of money,V is the velo...
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Figure 17-1 -Refer to Figure 17-1.When the money supply curve shifts from MS₁ to MS₂,

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