Question 1

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 1, then A)  when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. B)  when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. C)  there is an excess demand for money if the value of money in terms of goods and services is 0.375. D)  All of the above are correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD1, then

Accepted Answer

A)   when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services.
B)   when the money market is in equilibrium, one unit of goods and services sells for 2 dollars.
C)   there is an excess demand for money if the value of money in terms of goods and services is 0.375.
D)   All of the above are correct.

Question 2

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.

Question 3

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Accepted Answer

A)   velocity concept.
B)   Fisher effect.
C)   classical dichotomy.
D)   Mankiw effect.

Question 4

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.

Question 5

The country of Lessidinia has a tax system identical to that of the United States. Suppose someone in Lessidinia bought a parcel of land for 20,000 foci (the local currency)  in 1960 when the price index equaled 100. In 2002, the person sold the land for 100,000 foci, and the price index equaled 600. The tax rate on nominal gains was 20 percent. Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)   -60 percent
B)   -30 percent
C)   30 percent
D)   60 percent

Question 6

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Accepted Answer

A)   both higher inflation and higher nominal interest rates.
B)   a higher inflation rate, but not higher nominal interest rates.
C)   a higher nominal interest rate, but not higher inflation.
D)   neither a higher inflation rate nor a higher nominal interest rate.

Question 7

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Accepted Answer

A)   decreases the price level by 2 percent.
B)   decreases the price level by less than 2 percent.
C)   increases the price level by less than 2 percent.
D)   increases the price level by 2 percent.

Question 8

In which case below does a person's purchasing power from saving increase the least?

Accepted Answer

A)   the nominal interest rate = 10% and inflation = 8%
B)   the nominal interest rate = 9% and inflation = 6%
C)   the nominal interest rate = 8% and inflation = 4%
D)   the nominal interest rate = 7% and inflation = 2%

Question 9

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.

Question 10

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Accepted Answer

A)   M = 500, V = 4
B)   M = 1500, V = 3
C)   M = 2000, V = 2
D)   M = 500, V = 1

Question 11

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

Accepted Answer

A)   demanded increases.
B)   demanded decreases.
C)   supplied increases.
D)   supplied decreases.

Question 12

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Accepted Answer

A)   The nominal interest rate was 8 percent and the inflation rate was 6 percent.
B)   The nominal interest rate was 6 percent and the inflation rate was 4 percent.
C)   The nominal interest rate was 4 percent and the inflation rate was 2 percent.
D)   None of the above is correct.

Question 13

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)   is easier to impose.
B)   reduces inflation.
C)   falls mainly on high-income individuals.
D)   reduces the real cost of government expenditure.

Question 14

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)   excess demand for money, so the price level will rise.
B)   excess demand for money, so the price level will fall.
C)   excess supply of money, so the price level will rise.
D)   excess supply of money, so the price level will fall.

Question 15

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.

Question 16

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 17

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 18

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A)   menu costs
B)   inflation tax
C)   shoeleather costs
D)   All of the above are correct.

Question 19

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.

Question 20

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

Exam 12: Money Growth and Inflation

Money demand refers to

Correct Answer
verified

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Correct Answer
verified

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Correct Answer
verified

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct Answer
verified

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Correct Answer
verified

Correct Answer
verified

Relative-price variability

Correct Answer
verified

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 Answer
verified

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD₁, then

Correct Answer
verified

In which case below does a person's purchasing power from saving increase the least?

Correct Answer
verified

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Correct Answer
verified

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct Answer
verified

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

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

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

Correct Answer
verified

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

Correct Answer
verified

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Correct Answer
verified

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Correct Answer
verified

The inflation tax

Correct Answer
verified

Exam 12: Money Growth and Inflation

Money demand refers to

Correct AnswerverifiedShow Answer

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Correct AnswerverifiedShow Answer

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct AnswerverifiedShow Answer

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Relative-price variability

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

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD1, then

Correct AnswerverifiedShow Answer

In which case below does a person's purchasing power from saving increase the least?

Correct AnswerverifiedShow Answer

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 2 percent more goods.

Correct AnswerverifiedShow Answer

If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow Answer

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Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. If the relevant money-demand curve is the one labeled MD₁, then

Correct Answer
verified

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