Question 1

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be.The real interest rate she earns 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) C) and D)
F) B) and C)

Question 2

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

Question 3

Which of the following statements about inflation is correct?

Accepted Answer

A)   Evidence from studies indicates that,in U.S.newspapers,inflation is mentioned less frequently than other economic terms,such as unemployment and productivity.
B)   People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality.
C)   Nominal incomes are determined by nominal factors; they are not affected by real factors.
D)   Inflation does not in itself reduce people's real purchasing power.E) C) and D)
F) B) and C)

Question 4

Wages and prices are many times higher today than they were 30 years ago,yet people do not work a lot more hours or buy fewer goods.How can this be?

Accepted Answer

Inflation has raised the general price l...

Question 5

When the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)   nominal interest rates.
B)   real interest rates.
C)   the price level.
D)   the money supply.E) C) and D)
F) A) and C)

Question 6

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 D)
F) A) and C)

Question 7

When prices are falling,economists say that there is

Accepted Answer

A)   disinflation.
B)   deflation.
C)   a contraction.
D)   an inverted inflation.E) All of the above
F) A) and B)

Question 8

If money is neutral and velocity is stable,an increase in the money supply creates a proportional increase in

Accepted Answer

A)   real output only.
B)   nominal output only.
C)   the price level only.
D)   both the price level and nominal output.E) All of the above
F) C) and D)

Question 9

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

Question 10

The real interest rate is 8 percent and the nominal interest rate is 10.5 percent.Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)   deflation; 2.5 percent
B)   deflation; 20.5 percent
C)   inflation; 2.5 percent
D)   inflation; 20.5 percentE) A) and D)
F) B) and C)

Question 11

Based on past experience,if a country is experiencing hyperinflation,then which of the following would be a reasonable guess?

Accepted Answer

A)   The country has high money supply growth.
B)   Inflation is acting like a tax on everyone who holds money.
C)   The government is printing money to finance its expenditures.
D)   All of the above are correct.E) All of the above
F) C) and D)

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

Question 13

The costs of changing price tags and price listings are known as

Accepted Answer

A)   inflation-induced tax distortions.
B)   relative-price variability costs.
C)   shoeleather costs.
D)   menu costs.E) B) and C)
F) A) and D)

Question 14

The money supply is 4,000,nominal GDP is 8,000,and real GDP is 4,000,Which of the following is 2?

Accepted Answer

A)   the price level and velocity
B)   the price level but not velocity
C)   the price level and velocity.
D)   neither the price level nor velocityE) None of the above
F) A) and B)

Question 15

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,what is the real interest rate?

Accepted Answer

A)   7 percent
B)   5 percent
C)   3 percent
D)   3/5 percentE) C) and D)
F) B) and C)

Question 16

Which of the following is not correct?

Accepted Answer

A)   The inflation rate is measured as the percentage change in a price index.
B)   For the last 40 or so years,U.S.inflation hasn't shown much variation from its average rate of about 2 percent.
C)   During the 19th century there were long periods of falling prices in the U.S.
D)   Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.E) A) and B)
F) A) and C)

Question 17

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings.Income tax...

Question 18

According to the classical dichotomy,which of the following is influenced by monetary factors?

Accepted Answer

A)   the real wage
B)   the real interest rate
C)   the nominal wage
D)   All of the above are correct.E) None of the above
F) All of the above

Question 19

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

Question 20

Between 1880 and 1896 the average level of prices in the U.S.economy

Accepted Answer

A)   fell 23 percent.
B)   fell 4 percent.
C)   rose 23 percent.
D)   rose 50 percent.E) B) and D)
F) A) and C)

Exam 22: Money Growth and Inflation

Between 1880 and 1896 the average level of prices in the U.S.economy

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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

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Wages and prices are many times higher today than they were 30 years ago,yet people do not work a lot more hours or buy fewer goods.How can this be?

Correct AnswerverifiedInflation has raised the general price l...View AnswerShow Answer

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent,what is the real interest rate?

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According to the classical dichotomy,which of the following is influenced by monetary factors?

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Which of the following is not correct?

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High and unexpected inflation has a greater cost

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

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The real interest rate is 8 percent and the nominal interest rate is 10.5 percent.Is there inflation or deflation? What is the inflation or deflation rate?

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Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be.The real interest rate she earns is

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Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings.Income tax...View AnswerShow Answer

The costs of changing price tags and price listings are known as

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If money is neutral and velocity is stable,an increase in the money supply creates a proportional increase in

Correct AnswerverifiedShow Answer

When prices are falling,economists say that there is

Correct AnswerverifiedShow Answer

Which of the following statements about inflation is correct?

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The money supply is 4,000,nominal GDP is 8,000,and real GDP is 4,000,Which of the following is 2?

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

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Based on past experience,if a country is experiencing hyperinflation,then which of the following would be a reasonable guess?

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Inflation has raised the general price l...
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Inflation discourages savings.Income tax...
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