Question 1

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 D)

Question 2

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

Question 3

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent . This difference between actual and expected inflation

Accepted Answer

A)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)  transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)  transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) All of the above
F) B) and C)

Question 4

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 C)
F) B) and C)

Question 5

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)  both the classical dichotomy and the quantity theory of money.
B)  the classical dichotomy, but not the quantity theory of money.
C)  the quantity theory of money, but not the classical dichotomy.
D)  neither the classical dichotomy nor the quantity theory of money.E) All of the above
F) C) and D)

Question 6

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)  decreased. Other things the same, a decrease in velocity decreases the price level.
B)  decreased. Other things the same, a decrease in velocity increases the price level.
C)  increased. Other things the same, an increase in velocity decreases the price level.
D)  increased. Other things the same, an increase in velocity increases the price level.E) A) and B)
F) A) and C)

Question 7

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)  nominal and real GDP would fall by 7 percent.
B)  nominal GDP would fall by 7 percent; real GDP would be unchanged.
C)  nominal GDP would be unchanged; real GDP would fall by 7 percent.
D)  neither nominal GDP nor real GDP would change.E) A) and D)
F) All of the above

Question 8

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is correct?

Accepted Answer

A)  Inflation impedes financial markets in their role of allocating savings to alternative investments.
B)  Inflation encourages savings through the tax treatment on capital gains.
C)  Inflation encourages larger holdings of currency by the public.
D)  Inflation reduces people's real purchasing power.E) A) and C)
F) B) and C)

Question 10

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Accepted Answer

A)  the price level and the value of money rise.
B)  the price level rises and the value of money falls.
C)  the price level falls and the value of money rises.
D)  the price level and the value of money fall.E) A) and B)
F) B) and C)

Question 11

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 12

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 2, then A) when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. B) when the money market is in equilibrium, one unit of goods and services sells for 33 cents. C) there is an excess demand for money if the value of money in terms of goods and services is 0.5. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then

Accepted Answer

A)  when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services.
B)  when the money market is in equilibrium, one unit of goods and services sells for 33 cents.
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 13

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Accepted Answer

A) True 
 B)False

Question 14

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Accepted Answer

A) True 
 B)False

Question 15

From the early 1980's through the 1990's, the nominal interest rate

Accepted Answer

A)  fell because the Fed got inflation under control.
B)  fell because the Fed let inflation get out of control.
C)  rose because the Fed got inflation under control.
D)  rose because the Fed let inflation get out of control.E) All of the above
F) B) and C)

Question 16

The costs of inflation are

Accepted Answer

A)  ​shoeleather costs and menu costs.
B)  ​arbitrary redistributions of wealth.
C)  ​increased variability of relative prices.
D)  ​All of the above.E) A) and B)
F) C) and D)

Question 17

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)  The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
B)  The dollar amount you pay is a real value. The number of goods you give up is a nominal value.
C)  Both the dollar amount you pay and the goods you give up are nominal values.
D)  Both the dollar amount you pay and the goods you give up are real values.E) All of the above
F) None of the above

Question 18

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Question 19

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

Accepted Answer

A)  6
B)  1.5
C)  0.67
D)  0.167E) C) and D)
F) A) and B)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Correct AnswerverifiedShow Answer

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

From the early 1980's through the 1990's, the nominal interest rate

Correct AnswerverifiedShow Answer

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent . This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Correct AnswerverifiedShow Answer

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Correct AnswerverifiedShow Answer

The costs of inflation are

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For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Correct AnswerverifiedShow Answer

The shoeleather cost of inflation refers to

Correct AnswerverifiedShow Answer

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

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Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

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

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Which of the following is correct?

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According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

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Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS₂, then

Correct Answer
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Relative prices are the value of one goo...
View Answer

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According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
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