Question 1

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

Accepted Answer

A)   inflation averaged 8% per year and the real rate of return was 9%.
B)   inflation averaged 11% per year and the real rate of return was 17%.
C)   inflation averaged 5% per year and the real rate of return was 4%.
D)   inflation averaged 1% per year and the real rate of return was 6%.

Question 2

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 3

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Accepted Answer

The answer of You earn a nominal return of 6%...

Question 4

If the economy unexpectedly went from inflation to deflation,

Accepted Answer

A)   both debtors and creditors would have reduced real wealth.
B)   both debtors and creditors would have increased real wealth.
C)   debtors would gain at the expense of creditors.
D)   creditors would gain at the expense of debtors. D

Question 5

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False  True

Question 6

If a country experienced deflation, then

Accepted Answer

A)   the nominal interest rate would be greater than the real interest rate.
B)   the real interest rate would be greater than the nominal interest rate.
C)   the real interest rate would equal the nominal interest rate.
D)   nominal GDP would be greater than the money supply.

Question 7

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Accepted Answer

He was expecting it ...

Question 8

The value of money rises 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.

Question 9

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A)   9 percent inflation in the United States.
B)   3.6 percent inflation in Russia.
C)   59 percent inflation in Venezuela.
D)   9.3 percent inflation in India. D

Question 10

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 11

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds, th...

Question 12

Suppose that velocity rises while the money supply stays the same. It follows that

Accepted Answer

A)   P x Y must rise.
B)   P x Y must fall.
C)   P x Y must be unchanged.
D)   the effects on P x Y are uncertain.

Question 13

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)   1/P represents the value of money measured in terms of goods and services.
B)   P can be interpreted as the inflation rate.
C)   the supply of money influences the value of P, but the demand for money does not.
D)   All of the above are correct.

Question 14

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Accepted Answer

A)   40 percent.
B)   33.3 percent.
C)   25 percent.
D)   50 percent.

Question 15

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

Open marke...

Question 16

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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. Suppose the relevant money-supply curve is the one labeled MS1; also suppose the economy's real GDP is 30,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately

Accepted Answer

A)   3.0
B)   6.0
C)   9.0
D)   1.5

Question 19

Over the past 80 years, the overall price level in the U.S. has experienced an)

Accepted Answer

A)   4-fold increase.
B)   10-fold increase.
C)   13-fold increase.
D)   17-fold increase.

Question 20

In the U.S., people are required to pay taxes on

Accepted Answer

A)   nominal interest earnings, irrespective of their real interest earnings.
B)   real interest earnings, irrespective of their nominal interest earnings.
C)   real capital gains, irrespective of their nominal capital gains.
D)   All of the above are correct.

Exam 12: Money Growth and Inflation

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

Correct Answer
verified

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Correct Answer
verified

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Correct Answer
verified

If the economy unexpectedly went from inflation to deflation,

Correct Answer
verified
D

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Correct Answer
verified
True

If a country experienced deflation, then

Correct Answer
verified

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Correct Answer
verified
He was expecting it ...
View Answer

The value of money rises as the price level

Correct Answer
verified

Which country is correctly matched with its 2009 inflation rate?

Correct Answer
verified
D

The evidence from hyperinflations indicates that money growth and inflation

Correct Answer
verified

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Correct Answer
verified
When the Fed sells government bonds, th...
View Answer

Suppose that velocity rises while the money supply stays the same. It follows that

Correct Answer
verified

If P denotes the price of goods and services measured in terms of money, then

Correct Answer
verified

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Correct Answer
verified

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Correct Answer
verified
Open marke...
View Answer

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

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

Correct Answer
verified

Over the past 80 years, the overall price level in the U.S. has experienced an)

Correct Answer
verified

In the U.S., people are required to pay taxes on

Correct Answer
verified

Exam 12: Money Growth and Inflation

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

Correct AnswerverifiedShow Answer

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Correct AnswerverifiedShow Answer

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Correct AnswerverifiedShow Answer

If the economy unexpectedly went from inflation to deflation,

Correct AnswerverifiedD

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Correct AnswerverifiedTrue

If a country experienced deflation, then

Correct AnswerverifiedShow Answer

Mitch makes payments on a car loan. If the price level a year ago was 120 and people expected it to rise to 125 but it actually rose to 128, what happened to the real value of Mitch's payment as opposed to what he was expecting to happen? Express your answer to the nearest 100th.

Correct AnswerverifiedHe was expecting it ...View AnswerShow Answer

The value of money rises as the price level

Correct AnswerverifiedShow Answer

Which country is correctly matched with its 2009 inflation rate?

Correct AnswerverifiedD

The evidence from hyperinflations indicates that money growth and inflation

Correct AnswerverifiedShow Answer

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds, th...View AnswerShow Answer

Suppose that velocity rises while the money supply stays the same. It follows that

Correct AnswerverifiedShow Answer

If P denotes the price of goods and services measured in terms of money, then

Correct AnswerverifiedShow Answer

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Correct AnswerverifiedShow Answer

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Correct AnswerverifiedOpen marke...View AnswerShow Answer

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

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

Correct AnswerverifiedShow Answer

Over the past 80 years, the overall price level in the U.S. has experienced an)

Correct AnswerverifiedShow Answer

In the U.S., people are required to pay taxes on

Correct AnswerverifiedShow 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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D

Correct Answer
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True

Correct Answer
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Correct Answer
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He was expecting it ...
View Answer

Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
verified
When the Fed sells government bonds, th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified
Open marke...
View 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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