Question 1

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 2

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 3

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 4

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 5

The price level is determined by the supply of, and demand for, money.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A)   menu costs and shoeleather costs
B)   menu costs but not shoeleather costs
C)   shoeleather costs but not menu costs
D)   menu costs but not shoeleather costsE) B) and C)
F) A) and D)

Question 7

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.E) A) and D)
F) All of the above

Question 8

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Accepted Answer

A)   the price level would fall, so the value of money would fall.
B)   the price level would fall, so the value of money would rise.
C)   the price level would rise, so the value of money would fall.
D)   the price level would rise, so the value of money would rise.E) A) and C)
F) C) and D)

Question 9

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 10

Other things the same, an increase in velocity means that

Accepted Answer

A)   transactions per dollar increase so the price level rises.
B)   transactions per dollar increase so the price level falls.
C)   transactions per dollar decrease so the price level rises.
D)   transactions per dollar decrease so the price level falls.E) A) and C)
F) B) and D)

Question 11

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Accepted Answer

increases, a movemen...

Question 12

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) None of the above

Question 13

When inflation rises, people will desire to hold

Accepted Answer

A)   less money and will go to the bank less frequently.
B)   less money and will go to the bank more frequently.
C)   more money and will go to the bank less frequently.
D)   more money and will go to the bank more frequently.E) B) and D)
F) None of the above

Question 14

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)   deflation; 2 percent
B)   deflation; 10 percent
C)   inflation; 2 percent
D)   inflation; 10 percentE) A) and C)
F) A) and D)

Question 15

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.E) None of the above
F) C) and D)

Question 16

For a given real interest rate, a decrease in the inflation rate would

Accepted Answer

A)   decrease the after-tax real interest rate and so decrease saving.
B)   decrease the after-tax real interest rate and so increase saving.
C)   increase the after-tax real interest rate and so decrease saving.
D)   increase the after-tax real interest rate and so increase saving.E) A) and B)
F) A) and C)

Question 17

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) A) and B)
F) B) and C)

Question 18

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) B) and C)
F) A) and D)

Question 19

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 20

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Accepted Answer

A)   the money supply must have increased, perhaps because the Fed bought bonds.
B)   the money supply must have increased, perhaps because the Fed sold bonds.
C)   the money supply must have decreased, perhaps because the Fed bought bonds.
D)   the money supply must have decreased, perhaps because the Fed sold bonds.E) B) and C)
F) None of the above

Exam 30: Money Growth and Inflation

When inflation rises, people will desire to hold

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Correct AnswerverifiedShow Answer

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Correct AnswerverifiedShow Answer

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Correct Answerverifiedincreases, a movemen...View AnswerShow Answer

For a given real interest rate, a decrease in the inflation rate would

Correct AnswerverifiedShow 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

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

As the Consumer Price Index increases, the value of money

Correct AnswerverifiedShow Answer

There was hyperinflation during the

Correct AnswerverifiedShow Answer

An excess supply of money is eliminated by a falling price level

Correct AnswerverifiedShow Answer

Other things the same, an increase in velocity means that

Correct AnswerverifiedShow Answer

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct AnswerverifiedShow Answer

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Correct AnswerverifiedShow Answer

The United States has never had deflation.

Correct AnswerverifiedShow Answer

The evidence from hyperinflations indicates that money growth and inflation

Correct AnswerverifiedShow Answer

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Correct AnswerverifiedShow Answer

The price level is determined by the supply of, and demand for, money.

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

Most economists believe that monetary neutrality provides

Correct AnswerverifiedShow Answer

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A decrease in the value of money the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as __.

Correct Answer
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increases, a movemen...
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He was expecting it ...
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nominal interest rat...
View Answer

Correct Answer
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