Question 1

The price of a Honda Accord

Accepted Answer

A)   and the price of a Honda Accord divided by the price of a Honda Civic are both real variables.
B)   and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables.
C)   is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable.
D)   is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.E) None of the above
F) C) and D)

Question 2

As the Consumer Price Index increases, the value of money

Accepted Answer

A)   falls, so people hold more money to buy the goods and services they want.
B)   falls, so people hold less money to buy the goods and services they want.
C)   rises, so people hold more money to buy the goods and services they want.
D)   rises, so people hold less money to buy the goods and services they want.E) A) and B)
F) A) and C)

Question 3

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Accepted Answer

A)   8 percent
B)   15 percent
C)   2 percent
D)   1.7 percentE) None of the above
F) A) and B)

Question 4

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Accepted Answer

A)   both the nominal and the real interest rate fall.
B)   neither the nominal nor the real interest rate fall.
C)   the nominal interest rate falls, but the real interest rate does not.
D)   the real interest rate falls, but the nominal interest rate does not.E) C) and D)
F) B) and C)

Question 5

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A)   both a nominal gain and a real gain.
B)   a nominal gain and a real loss.
C)   a nominal loss and a real gain.
D)   both a nominal loss and a real loss.E) C) and D)
F) None of the above

Question 6

Figure 30-1 
-Refer to Figure 30-1. 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.E) A) and D)
F) B) and C)

Question 7

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Accepted Answer

A) True 
 B)False

Question 9

Inflation is problematic if

Accepted Answer

A)   it is less than the percentage increase in nominal income.
B)   it is less than the nominal return on saving.
C)   it equals the growth rate of real GDP in the long run.
D)   it distorts relative prices, causing a misallocation of resources.E) A) and C)
F) B) and D)

Question 10

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 11

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 12

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.E) A) and B)
F) B) and C)

Question 13

When inflation rises, 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) All of the above
F) A) and D)

Question 14

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.E) A) and B)
F) A) and C)

Question 15

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

A)   the price level
B)   real GDP
C)   nominal interest rates
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 16

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch...

Question 17

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Accepted Answer

A)   both interest income and capital gains.
B)   interest income but not capital gains.
C)   capital gains but not interest income.
D)   neither interest income nor capital gains.E) None of the above
F) All of the above

Question 18

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Accepted Answer

A)   the supply of money decreases and the value of money rises.
B)   the supply of money increases and the value of money falls.
C)   the demand for money increases and the value of money rises.
D)   the demand for money decreases and the value of money falls.E) All of the above
F) A) and B)

Question 19

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Accepted Answer

A)   .031-.20) 
B)   .041 -.20) 
C)   .041 - .20)  - .01
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 20

Most economists believe that monetary neutrality provides

Accepted Answer

A)   a good description of both the long run and the short run.
B)   a good description of neither the long run nor the short run.
C)   a good description of the short run, but not the long run.
D)   a good description of the long run, but not the short run.E) None of the above
F) B) and C)

Exam 17: Money Growth and Inflation

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Correct AnswerverifiedShow Answer

Inflation is problematic if

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

The source of all four classic hyperinflations was high rates of money growth.

Correct AnswerverifiedShow Answer

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Correct AnswerverifiedShow Answer

Most economists believe that monetary neutrality provides

Correct AnswerverifiedShow Answer

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

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Correct AnswerverifiedShow Answer

The price of a Honda Accord

Correct AnswerverifiedShow Answer

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Correct AnswerverifiedShow Answer

As the Consumer Price Index increases, the value of money

Correct AnswerverifiedShow Answer

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Correct AnswerverifiedShow Answer

When inflation rises, people

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

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Correct AnswerverifiedShow Answer

What are menu costs and why does high inflation increase menu costs?

Correct AnswerverifiedMenu costs are the costs of ch...View AnswerShow Answer

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Menu costs are the costs of ch...
View Answer

Correct Answer
verified