Question 1

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 2

In the U.S., people are required to pay taxes on

Accepted Answer

A)  nominal interest earnings, irrespective of their real interest earnings.
B)  real interest earnings, irrespective of their nominal interest earnings.
C)  real capital gains, irrespective of their nominal capital gains.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 3

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 4

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) C) and D)
F) None of the above

Question 5

Ashley puts money in a savings account at her bank earning 2 percent interest. One year later she takes her money out and notes that prices rose 3 percent. Ashley earned a

Accepted Answer

A)  ​real interest rate of -1 percent due to inflation.
B)  ​real interest rate of 1 percent due to inflation.
C)  ​nominal interest rate of -1 percent due to inflation.
D)  ​nominal interest rate of 1 percent due to inflation.E) C) and D)
F) A) and B)

Question 6

In order to maintain stable prices, a central bank must

Accepted Answer

A)  maintain low interest rates.
B)  keep unemployment low.
C)  tightly control the money supply.
D)  sell indexed bonds.E) All of the above
F) A) and D)

Question 7

Inflation can be measured by the

Accepted Answer

A)  change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years.
B)  change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.
C)  percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years.
D)  percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.E) B) and D)
F) B) and C)

Question 8

Monetary neutrality means that a change in the money supply

Accepted Answer

A)  does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run.
B)  does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
C)  does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run.
D)  does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.E) A) and B)
F) All of the above

Question 9

Real GDP measures output of final goods and services in physical units.

Accepted Answer

A) True 
 B)False

Question 10

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)  deflation; 2 percent
B)  deflation; 10 percent
C)  inflation; 2 percent
D)  inflation; 10 percentE) A) and B)
F) None of the above

Question 11

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch...

Question 12

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Accepted Answer

A)  .03(1-.20) 
B)  .04(1 -.20) 
C)  .04(1 - .20)  - .01
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 13

The inflation tax refers to

Accepted Answer

A)  the revenue a government creates by printing money.
B)  higher inflation which requires more frequent price changes.
C)  the idea that, other things the same, an increase in the tax rate raises the inflation rate.
D)  taxes being indexed for inflation.E) C) and D)
F) B) and D)

Question 14

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 15

When the price level rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)  increases, and so the value of money rises.
B)  increases, and so the value of money falls.
C)  decreases, and so the value of money rises.
D)  decreases, and so the value of money fallsE) All of the above
F) C) and D)

Question 16

A decrease in the money supply creates an excess

Accepted Answer

A)  supply of money that is eliminated by rising prices.
B)  supply of money that is eliminated by falling prices.
C)  demand for money that is eliminated by rising prices.
D)  demand for money that is eliminated by falling prices.E) A) and B)
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) B) and C)
F) A) and D)

Question 18

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 3 percent; the tax rate is 25 percent.
B)  Inflation is 1 percent; the tax rate is 50 percent.
C)  Inflation is 1 percent; the tax rate is 55 percent.
D)  Inflation is 4 percent; the tax rate is 10 percent.E) C) and D)
F) B) and C)

Question 19

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 20

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Accepted Answer

A)  both the upward trend in real GDP and the upward trend in the price level
B)  the upward trend in real GDP but not the upward trend in the price level
C)  the upward trend in the price level but not the upward trend in real GDP
D)  neither the upward trend in the price level nor the upward trend in real GDPE) A) and C)
F) A) and B)

Exam 30: Money Growth and Inflation

When inflation rises, people tend to go to the bank

Correct AnswerverifiedShow Answer

In the U.S., people are required to pay taxes on

Correct AnswerverifiedShow Answer

A decrease in the money supply creates an excess

Correct AnswerverifiedShow Answer

Real GDP measures output of final goods and services in physical units.

Correct AnswerverifiedShow Answer

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Correct AnswerverifiedShow Answer

When the price level rises, the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

The quantity equation is M x V = P x Y.

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

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

Inflation can be measured by the

Correct AnswerverifiedShow Answer

What are menu costs and why does high inflation increase menu costs?

Correct AnswerverifiedMenu costs are the costs of ch...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

Correct AnswerverifiedShow Answer

Ashley puts money in a savings account at her bank earning 2 percent interest. One year later she takes her money out and notes that prices rose 3 percent. Ashley earned a

Correct AnswerverifiedShow Answer

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

The inflation tax refers to

Correct AnswerverifiedShow Answer

In order to maintain stable prices, a central bank must

Correct AnswerverifiedShow Answer

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Correct AnswerverifiedShow Answer

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Menu costs are the costs of ch...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified