Question 1

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

Question 2

As the price level decreases,the value of money

Accepted Answer

A)   increases,so people want to hold more of it.
B)   increases,so people want to hold less of it.
C)   decreases,so people want to hold more of it.
D)   decreases,so people want to hold less of it.E) A) and D)
F) A) and C)

Question 3

Interest rates adjusted for the effects of inflation

Accepted Answer

A)   and inflation are nominal variables.
B)   and inflation are real variables.
C)   are real variables;inflation is a nominal variable.
D)   are nominal variables;inflation is a real variable.E) B) and C)
F) A) and B)

Question 4

The price level falls if either

Accepted Answer

A)   money demand or money supply shifts rightward.
B)   money demand shifts rightward or money supply shifts leftward.
C)   money demand shifts leftward or money supply shifts rightward.
D)   money demand or money supply shifts leftward.E) A) and B)
F) A) and C)

Question 5

The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

Accepted Answer

A)   6 percent
B)   5 percent
C)   1.5 percent
D)   1 percentE) C) and D)
F) None of the above

Question 6

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

Menu costs are the costs of ch...

Question 8

The inflation tax refers to

Accepted Answer

A)   the revenue a government creates by printing money.
B)   higher inflation which requires more frequent price changes.
C)   the idea that,other things the same,an increase in the tax rate raises the inflation rate.
D)   taxes being indexed for inflation.E) None of the above
F) All of the above

Question 9

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real variables.Most economists think this is a good description of the economy in the short run and in the long run.
B)   does not change real variables.Most economists think this is a good description of the economy in the long run but not the short run.
C)   does not change nominal variables.Most economists think this is a good description of the economy in the short-run and the long run.
D)   does not change nominal variables.Most economists think this is a good description of the economy in the long run but not the short run.E) A) and D)
F) B) and D)

Question 10

Suppose the price level rises,but the number of dollars you are paid per hour stays the same.This means that your

Accepted Answer

A)   nominal wage is higher.
B)   nominal wage is lower.
C)   real wage is higher.
D)   real wage is lower.E) C) and D)
F) A) and B)

Question 11

You observe people going to the bank more frequently.Other things the same this could result from

Accepted Answer

A)   an increase in inflation which increases money demand.
B)   an increase in inflation which reduces money demand.
C)   a decrease in inflation which increases money demand.
D)   a decrease in inflation which reduces money demand.E) C) and D)
F) None of the above

Question 12

Real GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 13

The classical dichotomy refers to the idea that the supply of money

Accepted Answer

A)   is irrelevant for understanding the determinants of nominal and real variables.
B)   determines nominal variables,but not real variables.
C)   determines real variables,but not nominal variables.
D)   is a determinant of both real and nominal variables.E) B) and D)
F) All of the above

Question 14

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically,the government in countries th...

Question 15

When the money market is drawn with the value of money on the vertical axis,a decrease in the money supply leads people to

Accepted Answer

A)   spend more so the value of a dollar rises.
B)   spend more so the value of a dollar falls.
C)   spend less so the value of a dollar rises.
D)   spend less so the value of a dollar falls.E) A) and B)
F) B) and C)

Question 16

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 17

You put money in the bank.The increase in the dollar value of your savings

Accepted Answer

A)   and the change in the number of goods you can buy with your savings are both nominal variables.
B)   and the change in the number of goods you can buy with your savings are both real variables.
C)   is a nominal variable,but the change in the number of goods you can buy with your savings is a real variable.
D)   is a real variable,but the change in the number of goods you buy with your savings is a nominal variable.E) A) and C)
F) B) and C)

Question 18

A decrease in the money supply creates an excess

Accepted Answer

A)   supply of money that is eliminated by rising prices.
B)   supply of money that is eliminated by falling prices.
C)   demand for money that is eliminated by rising prices.
D)   demand for money that is eliminated by falling prices.E) None of the above
F) A) and B)

Question 19

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

Accepted Answer

A)   falls to half it's original level.
B)   doubles.
C)   more than doubles.
D)   does not change.E) A) and B)
F) A) and C)

Question 20

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 20 percent.
B)   Inflation is 4 percent;the tax rate is 30 percent.
C)   Inflation is 3 percent;the tax rate is 40 percent.
D)   The after-tax real interest rate is the same for all of the above.E) A) and C)
F) A) and B)

Exam 30: Money Growth and Inflation

The classical dichotomy refers to the idea that the supply of money

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The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

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You observe people going to the bank more frequently.Other things the same this could result from

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

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

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A decrease in the money supply creates an excess

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You put money in the bank.The increase in the dollar value of your savings

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Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically,the government in countries th...View AnswerShow Answer

The inflation tax refers to

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

Suppose the price level rises,but the number of dollars you are paid per hour stays the same.This means that your

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The price level falls if either

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Dollar prices and relative prices are both nominal variables.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,a decrease in the money supply leads people to

Correct AnswerverifiedShow Answer

When inflation rises,people

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Real GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

As the price level decreases,the value of money

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Monetary neutrality means that a change in the money supply

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

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

Interest rates adjusted for the effects of inflation

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Typically,the government in countries th...
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Open marke...
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Correct Answer
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Correct Answer
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Menu costs are the costs of ch...
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Correct Answer
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