Question 1

According to the classical dichotomy, what increases when the money supply increases?

Accepted Answer

A)   the real interest rate
B)   the real GDP
C)   the value of money
D)   the price levelE) B) and C)
F) A) and D)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

According to the classical dichotomy, when the money supply doubles, what also double(s) ?

Accepted Answer

A)   employment
B)   nominal interest rates
C)   real interest rates
D)   the price levelE) A) and C)
F) A) and D)

Question 4

Under which condition is wealth distributed from creditors to debtors?

Accepted Answer

A)   when inflation is high, whether it is expected or not
B)   when inflation is low, whether it is expected or not
C)   when inflation is unexpectedly high
D)   when inflation is unexpectedly lowE) A) and B)
F) A) and D)

Question 5

Identify each of the following as nominal or real variables.
a. the physical output of goods and services
b. the overall price level
c. the dollar price of coffee
d. the price of coffee relative to the price of tea
e. the unemployment rate
f. the tips that you earn from your part-time serving job
g. the amount of goods you can purchase with the wage you get each hour
h. the income taxes that you pay the government

Accepted Answer

a. real variable
b. nominal va...

Question 6

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Accepted Answer

A)   1.8 percent
B)   2.4 percent
C)   3.2 percent
D)   4.4 percentE) A) and C)
F) C) and D)

Question 7

What are the costs of inflation?

Accepted Answer

The costs of inflation include "shoe lea...

Question 8

Norbert purchased 100 shares of Gentech stock for $200 per share in year 1 and sold all the shares in year 2 for $220 a share. Between year 1 and year 2, the price index increased by 5 percent. The tax on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Norbert pay on his gain?

Accepted Answer

A)   $900
B)   $950
C)   $1000
D)   $1050E) All of the above
F) C) and D) C

Question 9

If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?

Accepted Answer

A)   3 percent
B)   5 percent
C)   8 percent
D)   11 percentE) B) and D)
F) A) and B) B

Question 10

The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion, and real GDP is $400 billion. What is the price level in Freedonia?

Accepted Answer

A)   1
B)   2
C)   4
D)   8E) B) and D)
F) C) and D)

Question 11

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 12

How is the supply of money determined?

Accepted Answer

A)   by the price level
B)   by the Ministry of Finance
C)   by the Bank of Canada
D)   by the demand for moneyE) A) and C)
F) A) and B)

Question 13

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

Accepted Answer

A) True 
 B)False  False

Question 14

Under which condition is wealth distributed from debtors to creditors?

Accepted Answer

A)   when inflation is high, but expected
B)   when inflation is low, but expected
C)   when inflation is unexpectedly high
D)   when inflation is unexpectedly lowE) C) and D)
F) A) and D)

Question 15

What can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)   the nominal wage divided by the price level
B)   real output
C)   real interest rates
D)   the price levelE) A) and C)
F) B) and C)

Question 16

What is inflation positively correlated with?

Accepted Answer

A)   nominal wage growth
B)   real interest rate
C)   productivity growth rate
D)   the price levelE) B) and C)
F) None of the above

Question 17

In order to maintain stable prices, what must the central bank do?

Accepted Answer

A)   maintain low interest rates
B)   keep unemployment low
C)   tightly control the money supply
D)   sell indexed bondsE) A) and B)
F) B) and D)

Question 18

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Accepted Answer

A)   The equilibrium value and equilibrium quantity of money both increase.
B)   The equilibrium value and equilibrium quantity of money both decrease.
C)   The equilibrium value increases, while the equilibrium quantity of money decreases.
D)   The equilibrium value decreases, while the equilibrium quantity of money increases.E) B) and C)
F) A) and C)

Question 19

As the price level decreases, what happens to the value of money?

Accepted Answer

A)   It increases, so people want to hold more of it.
B)   It increases, so people want to hold less of it.
C)   It decreases, so people want to hold more of it.
D)   It decreases, so people want to hold less of it.E) None of the above
F) A) and D)

Question 20

For a given real interest rate, which statement best describes the effects of an increase in inflation?

Accepted Answer

A)   Inflation makes the real interest rate decrease, which encourages savings.
B)   Inflation makes the real interest rate decrease, which discourages savings.
C)   Inflation makes the real interest rate increase, which encourages savings.
D)   Inflation makes the real interest rate increase, which discourages savings.E) All of the above
F) A) and C)

Exam 11: Money Growth and Inflation

According to the classical dichotomy, what increases when the money supply increases?

Correct Answer
verified

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

Correct Answer
verified

According to the classical dichotomy, when the money supply doubles, what also double(s) ?

Correct Answer
verified

Under which condition is wealth distributed from creditors to debtors?

Correct Answer
verified

Correct Answer
verified
a. real variable
b. nominal va...
View Answer

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Correct Answer
verified

What are the costs of inflation?

Correct Answer
verified
The costs of inflation include "shoe lea...
View Answer

Correct Answer
verified
C

If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?

Correct Answer
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B

The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion, and real GDP is $400 billion. What is the price level in Freedonia?

Correct Answer
verified

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct Answer
verified
Inflation and nominal interest...
View Answer

How is the supply of money determined?

Correct Answer
verified

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

Correct Answer
verified
False

Under which condition is wealth distributed from debtors to creditors?

Correct Answer
verified

What can a country increase in the long run by increasing its money growth rate?

Correct Answer
verified

What is inflation positively correlated with?

Correct Answer
verified

In order to maintain stable prices, what must the central bank do?

Correct Answer
verified

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Correct Answer
verified

As the price level decreases, what happens to the value of money?

Correct Answer
verified

For a given real interest rate, which statement best describes the effects of an increase in inflation?

Correct Answer
verified

Exam 11: Money Growth and Inflation

According to the classical dichotomy, what increases when the money supply increases?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the classical dichotomy, when the money supply doubles, what also double(s) ?

Correct AnswerverifiedShow Answer

Under which condition is wealth distributed from creditors to debtors?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. real variableb. nominal va...View AnswerShow Answer

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Correct AnswerverifiedShow Answer

What are the costs of inflation?

Correct AnswerverifiedThe costs of inflation include "shoe lea...View AnswerShow Answer

Correct AnswerverifiedC

If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?

Correct AnswerverifiedB

The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion, and real GDP is $400 billion. What is the price level in Freedonia?

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

How is the supply of money determined?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

Under which condition is wealth distributed from debtors to creditors?

Correct AnswerverifiedShow Answer

What can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

What is inflation positively correlated with?

Correct AnswerverifiedShow Answer

In order to maintain stable prices, what must the central bank do?

Correct AnswerverifiedShow Answer

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Correct AnswerverifiedShow Answer

As the price level decreases, what happens to the value of money?

Correct AnswerverifiedShow Answer

For a given real interest rate, which statement best describes the effects of an increase in inflation?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. real variable
b. nominal va...
View Answer

Correct Answer
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Correct Answer
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The costs of inflation include "shoe lea...
View Answer

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C

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B

Correct Answer
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Correct Answer
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Inflation and nominal interest...
View Answer

Correct Answer
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Correct Answer
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False

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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