Question 1

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

Question 2

The inflation tax alters people's behavior and creates a deadweight loss.Explain.

Accepted Answer

Higher inflation gives people ...

Question 3

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who save than for those who borrow.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
D)   for savers in low income tax brackets than for savers in high income tax brackets.E) A) and D)
F) C) and D)

Question 4

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

Accepted Answer

The classical dichotomy argues that nomi...

Question 5

Based on the quantity equation,if Y = 3,000,P = 4,and V = 3,then M =

Accepted Answer

A)   $4,000.
B)   $2,250.
C)   $250.
D)   $36,000.E) A) and B)
F) None of the above

Question 6

If the quantity of money supplied is greater than the quantity demanded,then prices should fall.

Accepted Answer

A) True 
 B)False

Question 7

James took out a fixed-interest-rate loan when the CPI was 200.He expected the CPI to increase to 206 but it actually increased to 204.The real interest rate he paid is

Accepted Answer

A)   higher than he had expected,and the real value of the loan is higher than he had expected.
B)   higher than he had expected,and the real value of the loan is lower than he had expected.
C)   lower than he had expected,and the real value of the loan is higher than he had expected.
D)   lower then he had expected,and the real value of the loan is lower than he had expected.E) None of the above
F) A) and B)

Question 8

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

Accepted Answer

A)   increases the price level by more than 5 percent.
B)   increases the price level by 5 percent.
C)   increases the price level by 5 percent
D)   does not change the price level.E) B) and C)
F) B) and D)

Question 9

Higher inflation makes relative prices

Accepted Answer

A)   more variable,making it more likely that resources will be allocated to their best use.
B)   more variable,making it less likely that resources will be allocated to their best use.
C)   less variable,making it more likely that resources will be allocated to their best use.
D)   less variable,making it less likely that resources will be allocated to their best use.E) A) and B)
F) C) and D)

Question 10

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

Question 11

The shoeleather cost of inflation refers to

Accepted Answer

A)   the redistributional effects of unexpected inflation.
B)   the time spent searching for low prices when inflation rises.
C)   the waste of resources used to maintain lower money holdings.
D)   the increased cost to the government of printing more money.E) None of the above
F) A) and C)

Question 12

When the money market is drawn with the value of money on the vertical axis,the price level decreases if

Accepted Answer

A)   either money demand or money supply shifts right.
B)   either money demand or money supply shifts left.
C)   money demand shifts right or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) A) and B)
F) B) and C)

Question 13

Over the last 70 years,the average annual U.S.inflation rate was about

Accepted Answer

A)   2 percent,implying that prices have increased 10-fold.
B)   4 percent,implying that prices have increased 10-fold.
C)   2 percent,implying that prices have increased 16-fold.
D)   4 percent,implying that prices increased about 16-fold.E) None of the above
F) A) and B)

Question 14

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

Accepted Answer

A)   3 percent.
B)   4 percent.
C)   8 percent.
D)   12 percent.E) B) and C)
F) A) and B)

Question 15

If inflation is less than expected,who is wealth redistributed to?

Accepted Answer

The answer of If inflation is less than expected,who is...

Question 16

Figure 17-1 1,then A)  there is no excess supply or excess demand if the value of money is 2. B)  the equilibrium is at point C. C)  there is an excess supply of money if the value of money is 1. D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1.If the current money supply is MS1,then

Accepted Answer

A)   there is no excess supply or excess demand if the value of money is 2.
B)   the equilibrium is at point C.
C)   there is an excess supply of money if the value of money is 1.
D)   None of the above is correct.E) C) and D)
F) B) and C)

Question 17

If the Fed were to unexpectedly increase the money supply,creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 18

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.E) A) and B)
F) A) and C)

Question 19

The economy of Mainland uses gold as its money.If the government discovers a large reserve of gold on their land

Accepted Answer

A)   the supply of money decreases and the value of money rises.
B)   the supply of money increases and the value of money falls.
C)   the demand for money increases and the value of money rises.
D)   the demand for money decreases and the value of money falls.E) A) and B)
F) All of the above

Question 20

Which of the following is correct? Inflation

Accepted Answer

A)   impedes financial markets in their role of allocating resources.
B)   reduces the purchasing power of the average consumer.
C)   generally increases after-tax real interest rates.
D)   is most costly when anticipated.E) C) and D)
F) B) and C)

Exam 30: Money Growth and Inflation

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

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Figure 17-1 -Refer to Figure 17-1.If the current money supply is MS1,then

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When the money market is drawn with the value of money on the vertical axis,the price level decreases if

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James took out a fixed-interest-rate loan when the CPI was 200.He expected the CPI to increase to 206 but it actually increased to 204.The real interest rate he paid is

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The economy of Mainland uses gold as its money.If the government discovers a large reserve of gold on their land

Correct AnswerverifiedShow Answer

Over the last 70 years,the average annual U.S.inflation rate was about

Correct AnswerverifiedShow Answer

If the Fed were to unexpectedly increase the money supply,creditors would gain at the expense of debtors.

Correct AnswerverifiedShow 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

The shoeleather cost of inflation refers to

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

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

Suppose monetary neutrality holds and velocity is constant.A 5 percent increase in the money supply

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Higher inflation makes relative prices

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Which of the following is correct? Inflation

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If inflation is less than expected,who is wealth redistributed to?

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The inflation tax alters people's behavior and creates a deadweight loss.Explain.

Correct AnswerverifiedHigher inflation gives people ...View AnswerShow Answer

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

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

Based on the quantity equation,if Y = 3,000,P = 4,and V = 3,then M =

Correct AnswerverifiedShow Answer

If the quantity of money supplied is greater than the quantity demanded,then prices should fall.

Correct AnswerverifiedShow Answer

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Figure 17-1 -Refer to Figure 17-1.If the current money supply is MS₁,then

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The classical dichotomy argues that nomi...
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Higher inflation gives people ...
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