Question 1

The inflation tax

Accepted Answer

A)   transfers wealth from the government to households.
B)   is the increase in real income taxes due to lack of indexation in income tax rules.
C)   is a tax on everyone who holds money.
D)   All of the above are correct.

Question 2

Money demand refers to

Accepted Answer

A)   the total quantity of financial assets that people want to hold.
B)   how much income people want to earn per year.
C)   how much wealth people want to hold in liquid form.
D)   how much currency the Federal Reserve decides to print.

Question 3

According to the Fisher effect,if the central bank raises the rate of money supply growth,what happens to the nominal and the real interest rate?

Accepted Answer

The nominal interest...

Question 4

Menu costs refers to

Accepted Answer

A)   resources used by people to maintain lower money holdings when inflation is high.
B)   resources used to price shop during times of high inflation.
C)   the distortion in incentives created by inflation when taxes do not adjust for inflation.
D)   the cost of more frequent price changes induced by higher inflation.

Question 5

When inflation rises,firms make

Accepted Answer

A)   more frequent price changes.This raises their menu costs.
B)   more frequent price changes.This reduces their menu costs.
C)   less frequent price changes.This raises their menu costs.
D)   less frequent price changes.This reduces their menu costs.

Question 6

If P = 4 and Y = 450,then which of the following pairs of values are possible?

Accepted Answer

A)   M = 800,V = 4
B)   M = 600,V =3
C)   M = 400,V =2
D)   M = 200,V =1

Question 7

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

Accepted Answer

A)   the quantity of money demanded and the quantity of money supplied
B)   the quantity of money demanded but not the quantity of money supplied
C)   the quantity of money supplied but not the quantity of money demanded
D)   neither the quantity of money supplied nor the quantity of money demanded

Question 8

Suppose ice cream cones costs $3.Molly holds $60.What is the real value of the money she holds?

Accepted Answer

A)   $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold more dollars.
B)   $60.If the price of ice cream cones rises,to maintain the real value of her money holdings she need to hold fewer dollars.
C)   20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold more dollars.
D)   20 ice cream cones.If the price of ice cream cones rises,to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 9

If the price level this year was 140 and was 135 last year,what was the inflation rate to the nearest decimal?

Accepted Answer

The answer of If the price level this year was...

Question 10

When the money market is drawn with the value of money on the vertical axis,the value of money increases 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.

Question 11

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)   affect both nominal and real variables.
B)   affect neither nominal nor real variables.
C)   affect nominal variables,but not real variables.
D)   do not affect nominal variables,but do affect real variables.

Question 12

When the money market is drawn with the value of money on the vertical axis,if the Federal Reserve sells bonds,then the money supply curve

Accepted Answer

A)   shifts right,causing the price level to rise.
B)   shifts right,causing the price level to fall.
C)   shifts left,causing the price level to rise.
D)   shifts left,causing the price level to fall.

Question 13

When prices are falling,economists say that there is

Accepted Answer

A)   disinflation.
B)   deflation.
C)   a contraction.
D)   an inverted inflation.

Question 14

You put money into an account and earn a real interest rate of 6 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   4.8 percent
B)   3.2 percent
C)   2.8 percent
D)   None of the above is correct.

Question 15

Figure 17-1 2 and the value of money is 2,then A)  the quantity of money demanded is greater than the quantity supplied;the price level will rise. B)  the quantity of money demanded is greater than the quantity supplied;the price level will fall. C)  the quantity of money supplied is greater than the quantity demanded;the price level will rise. D)  the quantity of money supplied is greater than the quantity demanded;the price level will fall." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1.If the money supply is MS2 and the value of money is 2,then

Accepted Answer

A)   the quantity of money demanded is greater than the quantity supplied;the price level will rise.
B)   the quantity of money demanded is greater than the quantity supplied;the price level will fall.
C)   the quantity of money supplied is greater than the quantity demanded;the price level will rise.
D)   the quantity of money supplied is greater than the quantity demanded;the price level will fall.

Question 16

The money supply in Muckland is $100 billion.Nominal GDP is $800 billion and real GDP is $400 billion.What are the price level and velocity in Muckland?

Accepted Answer

A)   The price level and velocity are both 8.
B)   The price level is 2 and velocity is 8.
C)   The price level and velocity are both 4.
D)   The price level is 4 and velocity is 8.

Question 17

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

Accepted Answer

A)   the real interest rate
B)   real GDP
C)   the real wage
D)   None of the above increases.

Question 18

When inflation rises people will

Accepted Answer

A)   demand more money so the price level rises.
B)   demand more money so the price level falls.
C)   demand less money so the price level rises.
D)   demand less money so the price level falls.

Question 19

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A)   are positively related,which is consistent with the quantity theory of money.
B)   are positively related,which is not consistent with the quantity theory of money.
C)   are not related in a discernible fashion,which is consistent with the quantity theory of money.
D)   are not related in a discernible fashion,which is not consistent with the quantity theory of money.

Question 20

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds.One year later the price index is 126.Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket.What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)   4.3 percent
B)   3.1 percent
C)   1.8 percent
D)   1.2 percent

Exam 30: Money Growth and Inflation

If the price level this year was 140 and was 135 last year,what was the inflation rate to the nearest decimal?

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If P = 4 and Y = 450,then which of the following pairs of values are possible?

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When inflation rises,firms make

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

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The money supply in Muckland is $100 billion.Nominal GDP is $800 billion and real GDP is $400 billion.What are the price level and velocity in Muckland?

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The inflation tax

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According to the Fisher effect,if the central bank raises the rate of money supply growth,what happens to the nominal and the real interest rate?

Correct AnswerverifiedThe nominal interest...View AnswerShow Answer

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

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When the money market is drawn with the value of money on the vertical axis,if the Federal Reserve sells bonds,then the money supply curve

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The classical dichotomy argues that changes in the money supply

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You put money into an account and earn a real interest rate of 6 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

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When inflation rises people will

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Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds.One year later the price index is 126.Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket.What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

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When prices are falling,economists say that there is

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

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Money demand refers to

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The evidence from hyperinflations indicates that money growth and inflation

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Suppose ice cream cones costs $3.Molly holds $60.What is the real value of the money she holds?

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Figure 17-1 -Refer to Figure 17-1.If the money supply is MS2 and the value of money is 2,then

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Menu costs refers to

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The nominal interest...
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Figure 17-1 -Refer to Figure 17-1.If the money supply is MS₂ and the value of money is 2,then

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