Question 1

When prices are falling, economists say that there is

Accepted Answer

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

Question 2

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Accepted Answer

A)   60 percent.
B)   80 percent.
C)   220 percent.
D)   24,000 percent.

Question 3

When inflation rises, people tend to go to the bank

Accepted Answer

A)   more often, giving rise to menu costs.
B)   more often, giving rise to shoeleather costs.
C)   less often, giving rise to redistribution costs.
D)   less often, thereby lessening the severity of the inflation tax. B

Question 4

In which case below is the real interest rate the highest?

Accepted Answer

A)   the nominal interest rate = 1% and inflation = 3%
B)   the nominal interest rate = 6% and inflation = 4%
C)   the nominal interest rate = 2% and inflation = -1%
D)   the nominal interest rate = 2% and inflation = 1%

Question 5

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)   nominal and real GDP would fall by 7 percent.
B)   nominal GDP would fall by 7 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would fall by 7 percent.
D)   neither nominal GDP nor real GDP would change.

Question 6

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 7

Higher inflation

Accepted Answer

A)   causes firms to change prices less frequently and makes relative prices less variable.
B)   causes firms to change prices less frequently and makes relative prices more variable.
C)   causes firms to change prices more frequently and makes relative prices less variable.
D)   causes firms to change prices more frequently and makes relative prices more variable.

Question 8

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

Question 9

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Figure 30-1 
-Refer to Figure 30-1. If the current money supply is MS1, then

Accepted Answer

A)   equilibrium exists when the value of money is 2.
B)   equilibrium exists when the equilibrium is at point D.
C)   equilibrium exists when the value of money is 1.
D)   there is excess demand if the value of money is 2.

Question 12

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

nominal, r...

Question 13

If the price level increased from 120 to 130, then what was the inflation rate?

Accepted Answer

A)   1.1 percent.
B)   7.7 percent.
C)   10.0 percent.
D)   8.3 percent.

Question 14

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 15

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat...

Question 16

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 17

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent; the tax rate is 15 percent.
B)   Inflation is 2 percent; the tax rate is 40 percent.
C)   Inflation is 1 percent; the tax rate is 50 percent.
D)   The after-tax real interest rate is the same for all of the above. C

Question 18

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.

Question 19

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

$11,000

Question 20

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Accepted Answer

A)   2,000.
B)   200,000.
C)   12,500.
D)   32,000.

Exam 22: Money Growth and Inflation

When prices are falling, economists say that there is

Correct AnswerverifiedShow Answer

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Correct AnswerverifiedShow Answer

When inflation rises, people tend to go to the bank

Correct AnswerverifiedB

In which case below is the real interest rate the highest?

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

Higher inflation

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Shoeleather costs and menu costs are both costs of anticipated inflation.

Correct AnswerverifiedShow Answer

If a country experienced deflation, then

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. If the current money supply is MS1, then

Correct AnswerverifiedShow Answer

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Correct Answerverifiednominal, r...View AnswerShow Answer

If the price level increased from 120 to 130, then what was the inflation rate?

Correct AnswerverifiedShow Answer

The money demand curve shifts to the left when the Fed buys government bonds.

Correct AnswerverifiedShow Answer

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Correct Answerverifiednominal interest rat...View AnswerShow 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

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedC

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

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Correct Answerverified$11,000

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Correct AnswerverifiedShow Answer

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B

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The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

Correct Answer
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nominal, r...
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C

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$11,000

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