Question 1

Steve purchases some land for $30,000.He maintains it,but makes no improvements to it.One year later he sells it for $32,000.Stephanie puts $30,000 in a savings account that pays 6% interest.Steve has to pay the 50% capital gains tax,Stephanie is in the 35% tax bracket.The inflation rate was 2%.Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A)   Steve had both the higher before-tax real gain and the higher after-tax real gain.
B)   Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
C)   Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain.
D)   Stephanie had both the higher before-tax real gain and the higher after-tax real gain.E) B) and C)
F) A) and D)

Question 2

When the money market is drawn with the value of money on the vertical axis,as the price level decreases,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) A) and C)
F) A) and D)

Question 3

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Accepted Answer

A)   both the nominal and the real interest rate fall.
B)   neither the nominal nor the real interest rate fall.
C)   the nominal interest rate falls,but the real interest rate does not.
D)   the real interest rate falls,but the nominal interest rate does not.E) A) and D)
F) A) and B)

Question 4

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

Accepted Answer

A)   velocity rose.If monetary neutrality holds the rise in velocity increased the ratio M/P.
B)   velocity rose.If monetary neutrality holds the rise in velocity decreased the ratio M/P.
C)   velocity fell.If monetary neutrality holds the fall in velocity increased the ratio M/P.
D)   velocity fell.If monetary neutrality holds the fall in velocity decreased the ratio M/P.E) A) and C)
F) All of the above

Question 5

An associate professor of physics gets a $200 a month raise.She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Accepted Answer

A)   Her real and nominal salary have risen.
B)   Her real and nominal salary have fallen.
C)   Her real salary has risen and her nominal salary has fallen.
D)   Her real salary has fallen and her nominal salary has risen.E) All of the above
F) B) and C)

Question 6

Relative-price variability

Accepted Answer

A)   rises with inflation,leading to an improved allocation of resources.
B)   rises with inflation,leading to a misallocation of resources.
C)   falls with inflation,leading to an improved allocation of resources.
D)   falls with inflation,leading to a misallocation of resources.E) B) and D)
F) A) and B)

Question 7

Printing money to finance government expenditures

Accepted Answer

A)   causes the value of money to rise.
B)   imposes a tax on everyone who holds money.
C)   is the principal method by which the U.S.government finances its expenditures.
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 8

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 9

If velocity and output were nearly constant,then

Accepted Answer

A)   the inflation rate would be much higher than the money supply growth rate.
B)   the inflation rate would be about the same as the money supply growth rate.
C)   the inflation rate would be much lower than the money supply growth rate.
D)   any of the above would be possible.E) C) and D)
F) B) and C)

Question 10

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts.T...

Question 11

The source of hyperinflations is primarily

Accepted Answer

A)   lower output growth.
B)   continuing declines in velocity.
C)   increases in money-supply growth.
D)   continuing increases in money demand.E) A) and C)
F) B) and C)

Question 12

The Fisher effect

Accepted Answer

A)   says the government can generate revenue by printing money.
B)   says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)   explains how higher money supply growth leads to higher inflation.
D)   explains how prices adjust to obtain equilibrium in the money market.E) A) and B)
F) A) and C)

Question 13

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 14

According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

Accepted Answer

A)   nominal and real GDP would rise by 5 percent.
B)   nominal GDP would rise by 5 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would rise by 5 percent.
D)   neither nominal GDP nor real GDP would change.E) B) and C)
F) A) and D)

Question 15

Most economists believe the principle of monetary neutrality is

Accepted Answer

A)   relevant to both the short and long run.
B)   irrelevant to both the short and long run.
C)   mostly relevant to the short run.
D)   mostly relevant to the long run.E) A) and B)
F) A) and C)

Question 16

Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.

Accepted Answer

A) True 
 B)False

Question 17

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 real interest rates.
B)   the inflation rate,but not real interest rates.
C)   real interest rates,but not the inflation rate.
D)   neither the inflation rate nor real interest rates.E) A) and B)
F) None of the above

Question 18

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in...

Question 19

According to the classical dichotomy,when the money supply doubles,which of the following also doubles?

Accepted Answer

A)   the price level and nominal wages
B)   the price level,but not the nominal wage
C)   the nominal wage,but not the price level
D)   neither the nominal wage nor the price levelE) A) and B)
F) A) and C)

Question 20

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Exam 22: Money Growth and Inflation

Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.

Correct Answer
verified

The source of hyperinflations is primarily

Correct Answer
verified

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

Correct Answer
verified

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Correct Answer
verified

An associate professor of physics gets a $200 a month raise.She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Correct Answer
verified

Most economists believe the principle of monetary neutrality is

Correct Answer
verified

According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

Correct Answer
verified

In United States history there were long periods when most prices fell.

Correct Answer
verified

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Correct Answer
verified

If velocity and output were nearly constant,then

Correct Answer
verified

Why did farmers in the late 1800s dislike deflation?

Correct Answer
verified
Most had large nominal debts.T...
View Answer

Correct Answer
verified

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

Correct Answer
verified

The Fisher effect

Correct Answer
verified

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Correct Answer
verified

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

Correct Answer
verified

Relative-price variability

Correct Answer
verified

Printing money to finance government expenditures

Correct Answer
verified

According to the classical dichotomy,when the money supply doubles,which of the following also doubles?

Correct Answer
verified

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Correct Answer
verified
The Fisher effect says that increases in...
View Answer

Exam 22: Money Growth and Inflation

Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.

Correct AnswerverifiedShow Answer

The source of hyperinflations is primarily

Correct AnswerverifiedShow Answer

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

Correct AnswerverifiedShow Answer

For a given real interest rate,an increase in the inflation rate reduces the after-tax real interest rate.

Correct AnswerverifiedShow Answer

An associate professor of physics gets a $200 a month raise.She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Correct AnswerverifiedShow Answer

Most economists believe the principle of monetary neutrality is

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money,if the money supply increases by 5 percent,then

Correct AnswerverifiedShow Answer

In United States history there were long periods when most prices fell.

Correct AnswerverifiedShow Answer

Under the assumptions of the Fisher effect and monetary neutrality,if the money supply growth rate falls,then

Correct AnswerverifiedShow Answer

If velocity and output were nearly constant,then

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts.T...View AnswerShow Answer

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

The Fisher effect

Correct AnswerverifiedShow Answer

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Relative-price variability

Correct AnswerverifiedShow Answer

Printing money to finance government expenditures

Correct AnswerverifiedShow Answer

According to the classical dichotomy,when the money supply doubles,which of the following also doubles?

Correct AnswerverifiedShow Answer

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Most had large nominal debts.T...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The Fisher effect says that increases in...
View Answer