Question 1

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 2

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Accepted Answer

A)  The $750 is a nominal variable. The 300 cups of coffee is a real variable.
B)  The $750 is a real variable. The 300 cups of coffee is a nominal variable.
C)  Both the $750 and the 300 cups of coffee are nominal variables.
D)  Both the $750 and the 300 cups of coffee are real variables.E) A) and C)
F) None of the above

Question 3

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Accepted Answer

A)  Nominal and real tuition were both higher in 1975.
B)  Nominal and real tuition were both higher in 2011.
C)  Nominal tuition was higher in 1975, real tuition was higher in 2011.
D)  Nominal tuition was higher in 2011, real tuition was higher in 1975.E) A) and D)
F) B) and D)

Question 4

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Accepted Answer

deflation,...

Question 5

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A)  the inflation rate and the nominal interest rate by the same number of percentage points.
B)  nominal interest rates but by less than the percentage point increase in the inflation rate.
C)  the inflation rate but not the nominal interest.
D)  neither the inflation rate nor the nominal interest rate.E) A) and B)
F) B) and D)

Question 6

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1 to MS2? A) an increase in the value of money B) a decrease in the price level C) an open-market purchase of bonds by the Federal Reserve D) the Federal Reserve sells bonds." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)  an increase in the value of money
B)  a decrease in the price level
C)  an open-market purchase of bonds by the Federal Reserve
D)  the Federal Reserve sells bonds.E) B) and C)
F) None of the above

Question 7

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A)  upward-sloping.
B)  downward-sloping.
C)  horizontal.
D)  vertical.E) All of the above
F) A) and B)

Question 8

Which of the following is correct?

Accepted Answer

A)  A period of hyperinflation is a period of extraordinarily low inflation.
B)  A period of deflation is any period during which the inflation rate is decreasing.
C)  In the 1970s, U.S. inflation averaged about 7.8 percent per year
D)  All of the above are correct.E) None of the above
F) C) and D)

Question 9

If monetary neutrality holds, then an increase in the money supply

Accepted Answer

A)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run.
B)  increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run.
C)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run.
D)  increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.E) C) and D)
F) All of the above

Question 10

When the Consumer Price Index increases from 100 to 120

Accepted Answer

A)  more money is needed to buy the same amount of goods, so the value of money falls.
B)  more money is needed to buy the same amount of goods, so the value of money rises.
C)  less money is needed to buy the same amount of goods, so the value of money falls.
D)  less money is needed to buy the same amount of goods, so the value of money rises.E) B) and C)
F) C) and D)

Question 11

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

Question 12

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A)  the expected real interest rate is 7 percent.
B)  the expected real interest rate is 1 percent.
C)  the expected real interest rate is 1.33 percent.
D)  the expected real interest rate is 12 percent.E) B) and C)
F) None of the above

Question 13

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

Question 14

When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money

Accepted Answer

A)  increases, so the quantity of money demanded increases.
B)  increases, so the quantity of money demanded decreases.
C)  decreases, so the quantity of money demanded decreases.
D)  decreases, so the quantity of money demanded increases.E) None of the above
F) B) and D)

Question 15

Economic variables whose values are measured in goods are called

Accepted Answer

A)  dichotomous variables.
B)  nominal variables.
C)  classical variables.
D)  real variables.E) A) and B)
F) B) and C)

Question 16

Money demand depends on

Accepted Answer

A)  the price level and the interest rate.
B)  the price level but not the interest rate.
C)  the interest rate but not the price level.
D)  neither the price level nor the interest rate.E) C) and D)
F) B) and D)

Question 17

The value of money falls as the price level

Accepted Answer

A)  rises, because the number of dollars needed to buy a representative basket of goods rises.
B)  rises, because the number of dollars needed to buy a representative basket of goods falls.
C)  falls, because the number of dollars needed to buy a representative basket of goods rises.
D)  falls, because the number of dollars needed to buy a representative basket of goods falls.E) A) and B)
F) A) and C)

Question 18

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

Question 19

When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right

Accepted Answer

A)  the price level must have risen
B)  the price level must have fallen.
C)  the price level rises if money supply shifts farther than money demand.
D)  the price level falls if money supply shifts farther than money demand.E) A) and C)
F) A) and D)

Question 20

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

Accepted Answer

A)  demanded increases.
B)  demanded decreases.
C)  supplied increases.
D)  supplied decreases.E) None of the above
F) All of the above

Exam 30: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right

Correct AnswerverifiedShow Answer

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

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

Which of the following is correct? Inflation

Correct AnswerverifiedShow Answer

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Correct AnswerverifiedShow Answer

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money

Correct AnswerverifiedShow Answer

When the Consumer Price Index increases from 100 to 120

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

Correct AnswerverifiedShow Answer

Money demand depends on

Correct AnswerverifiedShow Answer

The value of money falls as the price level

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. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Correct AnswerverifiedShow Answer

Economic variables whose values are measured in goods are called

Correct AnswerverifiedShow Answer

With the value of money on the vertical axis, the money supply curve is

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Correct Answerverifieddeflation,...View AnswerShow Answer

Dollar prices and relative prices are both nominal variables.

Correct AnswerverifiedShow Answer

If monetary neutrality holds, then an increase in the money supply

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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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. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Correct Answer
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A decrease in the overall price level (or falling prices) is called _. An extraordinarily high rate of inflation is called _.

Correct Answer
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deflation,...
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