Question 1

If the price level last year was 180 and this year it is 176, then

Accepted Answer

A)   there was inflation of 2.3 percent.
B)   there was inflation of 4.0 percent.
C)   there was deflation of 2.2 percent.
D)   there was deflation of 4.0 percent.E) A) and D)
F) B) and C)

Question 2

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)   Inflation is 5 percent; the tax rate is 40 percent.
B)   Inflation is 4 percent; the tax rate is 30 percent.
C)   Inflation is 3 percent; the tax rate is 45 percent.
D)   Inflation is 2 percent; the tax rate is 50 percent.E) A) and D)
F) A) and B)

Question 3

When the Consumer Price Index increases from 100 to 120

Accepted Answer

A)   more money is needed to buy the same amount of goods, so the value of money falls.
B)   more money is needed to buy the same amount of goods, so the value of money rises.
C)   less money is needed to buy the same amount of goods, so the value of money falls.
D)   less money is needed to buy the same amount of goods, so the value of money rises.E) None of the above
F) A) and D)

Question 4

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Accepted Answer

A)   Y rose, V rose
B)   Y fell, V fell
C)   Y rose, V fell
D)   Y fell, V roseE) C) and D)
F) A) and D)

Question 5

The shoeleather cost of inflation refers to

Accepted Answer

A)   the redistributional effects of unexpected inflation.
B)   the time spent searching for low prices when inflation rises.
C)   the waste of resources used to maintain lower money holdings.
D)   the increased cost to the government of printing more money.E) None of the above
F) All of the above

Question 6

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 7

Suppose the rate of inflation rate is two percent and the nominal interest rate is five percent. According to the Fisher Effect, an increase in the inflation rate to six percent should cause the nominal interest rate to increase from five percent to in the long run.

Accepted Answer

The answer of Suppose the rate of inflation rate is...

Question 8

When inflation falls, people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.E) B) and C)
F) All of the above

Question 9

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Accepted Answer

A)   $250.
B)   $25,000.
C)   $1,000.
D)   $6,250.E) B) and C)
F) A) and D)

Question 10

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A)   falls to half its original level.
B)   doubles.
C)   more than doubles.
D)   does not change.E) A) and B)
F) None of the above

Question 11

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) None of the above
F) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Accepted Answer

A)   higher than she had expected, and the real value of the loan is higher than she had expected.
B)   higher than she had expected, and the real value of the loan is lower than she had expected.
C)   lower than she had expected, and the real value of the loan is higher than she had expected.
D)   lower then she had expected, and the real value of the loan is lower than she had expected.E) All of the above
F) B) and C)

Question 14

When we assume that the supply of money is a variable that the central bank controls, we

Accepted Answer

A)   must then assume as well that the demand for money is not influenced by the value of money.
B)   must then assume as well that the price level is unrelated to the value of money.
C)   are ignoring the fact that, in the real world, households are also suppliers of money.
D)   are ignoring the complications introduced by the role of the banking system.E) None of the above
F) B) and C)

Question 15

There was hyperinflation during the

Accepted Answer

A)   period 1880-1896 in the United States.
B)   1970s in the United States.
C)   early part of the current century in Zimbabwe.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 16

What two key assumptions does the quantity theory make concerning variables in the equation of exchange?

Accepted Answer

That V is ...

Question 17

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Accepted Answer

A)   The $80 is a real variable. The quantity of shoes is a nominal variable.
B)   The $80 is a nominal variable. The quantity of shoes is a real variable.
C)   Both the $80 and the quantity of shoes are nominal variables.
D)   Both the $80 and the quantity of shoes are real variables.E) None of the above
F) A) and B)

Question 18

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Accepted Answer

An increase in inflation reduc...

Question 19

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

A)   higher than she had expected, and the real value of the loan is higher than she had expected.
B)   higher than she had expected, and the real value of the loan is lower than she had expected.
C)   lower than she had expected, and the real value of the loan is higher than she had expected.
D)   lower then she had expected, and the real value of the loan is lower than she had expected.E) All of the above
F) A) and D)

Question 20

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 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)   5.4 percent
C)   7.2 percent
D)   4.2 percent.E) All of the above
F) A) and B)

Exam 22: Money Growth and Inflation

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

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The shoeleather cost of inflation refers to

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Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

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When inflation falls, people

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What two key assumptions does the quantity theory make concerning variables in the equation of exchange?

Correct AnswerverifiedThat V is ...View AnswerShow Answer

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Correct AnswerverifiedShow Answer

When the Consumer Price Index increases from 100 to 120

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Suppose the rate of inflation rate is two percent and the nominal interest rate is five percent. According to the Fisher Effect, an increase in the inflation rate to six percent should cause the nominal interest rate to increase from five percent to in the long run.

Correct AnswerverifiedShow Answer

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Correct AnswerverifiedShow Answer

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Correct AnswerverifiedAn increase in inflation reduc...View AnswerShow Answer

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Correct AnswerverifiedShow Answer

If the price level last year was 180 and this year it is 176, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Y and M are constant and V doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Correct AnswerverifiedShow Answer

Relative-price variability

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings. Income ta...View AnswerShow Answer

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Correct AnswerverifiedShow Answer

There was hyperinflation during the

Correct AnswerverifiedShow Answer

When we assume that the supply of money is a variable that the central bank controls, we

Correct AnswerverifiedShow Answer

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That V is ...
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An increase in inflation reduc...
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Inflation discourages savings. Income ta...
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