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Exam 11: Money Growth and Inflation

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Question 91

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What does the classical theory of inflation try to explain?

A) changes in relative prices in the economy determined by factors other than inflation
B) the effect of inflation on economic growth
C) the short-run determinants of the price level and the inflation rate
D) the long-run determinants of the price level and the inflation rate

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

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Question 92

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What is the price of a Honda Accord divided by the price of a Honda Civic called?

A) a classical variable
B) a dichotomous variable
C) a nominal variable
D) a real variable

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

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Question 93

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List and define any two of the costs of high inflation.

According to the quantity equation,if P = 4 and Y = 800,which of the following pairs could M and V be?

People use more resources to reduce their money holdings because of high inflation.What is this an example of?

The irrelevance of monetary changes for real variables is called monetary neutrality.Most economists accept monetary neutrality as a good description of the economy in the long run,but not the short run.

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

Trent bought a parcel of land for $20 000 in 1960 when the price index was 100;he sold it in 2013,when the price index was 600,for $100 000.If Trent must pay 20 percent of any capital gain in taxes,what is his after-tax real capital gain (in 2013 dollars) ?

Which of the following does real GDP measure?

You put money in an account and earn a real interest rate of 8 percent.Inflation is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real interest rate?

Assuming that velocity is stable,if real GDP grows by 10 percent this year,and if the money supply does not change this year,how does the price level or nominal GDP change?

Under which of the following conditions is wealth distributed from creditors to debtors?

Suppose that the Government of Canada unexpectedly decided to pay off its debt by printing new money.Which of the following would happen?

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

How can people avoid the inflation tax?

When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following would shift money demand to the right?

Which of the following are people required to report on income tax forms?

The velocity of money in the small Republic of Sloagia is always the same.Last year,the money supply was $2 billion and real GDP was $5 billion.This year,the money supply increased by 6 percent,real GDP by 4 percent,and nominal GDP is $6.5 billion. a)Calculate the velocity of money and the price levels in the two years,and then calculate the inflation rate. b)Calculate the inflation rate using the formula ∆M/M + ∆V/V = ∆P/P + ∆Y/Y,where the Greek letter ∆ represents a change and the ratio ∆M/M × 100 is the percentage change (or the rate of change)in M.Compare this result with the result you obtained in part a.Why could there be some difference?

When the money market is depicted in a diagram with the value of money on the vertical axis,which of the following happens if the price level is above the equilibrium level?

In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded,draw the Mᵈ - P curve that is implied by the quantity equation.Now,replace the price level in your graph with the value of money on the vertical axis and redraw the money demand curve.What do you observe?