Question 1

If the price level last year was 180 and this year it is 176, then

Accepted Answer

A)   there was inflation of 2.3 percent.
B)   there was inflation of 4.0 percent.
C)   there was deflation of 2.2 percent.
D)   there was deflation of 4.0 percent.E) B) and C)
F) C) and D)

Question 2

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Accepted Answer

A)   raised both the price level and the value of gold in Cairo.
B)   raised the price level, but decreased the value of gold in Cairo.
C)   lowered the price level, but increased the value of gold in Cairo.
D)   lowered both the price level and the value of gold in Cairo.E) A) and C)
F) A) and D)

Question 3

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

Accepted Answer

A)   demanded increases.
B)   demanded decreases.
C)   supplied increases.
D)   supplied decreases.E) B) and D)
F) A) and C)

Question 4

According to the classical dichotomy, which of the following is affected by monetary factors?

Accepted Answer

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

Question 5

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)   Austria in the 1920's.
B)   Hungary in the 1920's.
C)   Poland in the 1920's.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 6

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent; the tax rate is 25 percent.
B)   Inflation is 1 percent; the tax rate is 50 percent.
C)   Inflation is 1 percent; the tax rate is 55 percent.
D)   Inflation is 4 percent; the tax rate is 10 percent.E) A) and B)
F) A) and C)

Question 7

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old valueE) A) and B)
F) A) and C)

Question 8

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

Accepted Answer

A)   0.5 and the equilibrium price level is 2.
B)   2 and the equilibrium price level is 0.5.
C)   0.5 and the equilibrium price level cannot be determined from the graph.
D)   2 and the equilibrium price level cannot be determined from the graph.E) B) and C)
F) A) and B)

Question 9

Which of the following is not correct?

Accepted Answer

A)   The inflation rate is measured as the percentage change in a price index.
B)   For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent.
C)   During the 19th century there were long periods of falling prices in the U.S.
D)   Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.E) A) and C)
F) All of the above

Question 10

A decrease in the overall price level or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Accepted Answer

deflation,...

Question 11

The data on hyperinflation show a clear link between the quantity of money and

Accepted Answer

A)   the price level.
B)   growth rate of GDP.
C)   unemployment rate.
D)   velocity.E) None of the above
F) All of the above

Question 12

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 13

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

Accepted Answer

A)   10 percent
B)   20 percent
C)   3 percent
D)   5 percentE) B) and C)
F) All of the above

Question 14

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who borrow than for those who save.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage.
D)   for savers in high income tax brackets than for savers in low income tax brackets.E) B) and D)
F) None of the above

Question 15

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

Accepted Answer

A)   4 percent
B)   6 percent
C)   8 percent
D)   10 percentE) A) and B)
F) B) and C)

Question 16

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 17

The principle of monetary neutrality implies that an increase in the money supply will

Accepted Answer

A)   increase real GDP and the price level.
B)   increase real GDP, but not the price level.
C)   increase the price level, but not real GDP.
D)   increase neither the price level nor real GDP.E) A) and B)
F) All of the above

Question 18

Higher inflation

Accepted Answer

A)   causes firms to change prices less frequently and makes relative prices less variable.
B)   causes firms to change prices less frequently and makes relative prices more variable.
C)   causes firms to change prices more frequently and makes relative prices less variable.
D)   causes firms to change prices more frequently and makes relative prices more variable.E) A) and C)
F) A) and D)

Question 19

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Accepted Answer

A)   a real interest rate of 3 percent and an inflation rate of 2 percent.
B)   a real interest rate of 7 percent and an inflation rate of 1 percent.
C)   a real interest rate of 5 percent and an inflation rate of 1 percent.
D)   a real interest rate of 6 percent and an inflation rate of 1 percent.E) None of the above
F) C) and D)

Question 20

If the number of dollars needed to buy a representative basket of goods falls, the price level

Accepted Answer

A)   falls, so the value of money falls.
B)   falls, so the value of money rises.
C)   rises, so the value of money falls.
D)   rises, so the value of money rises.E) B) and D)
F) C) and D)

Exam 12: Money Growth and Inflation

The principle of monetary neutrality implies that an increase in the money supply will

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In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Correct AnswerverifiedShow Answer

If the price level last year was 180 and this year it is 176, 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 money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

Correct AnswerverifiedShow Answer

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Correct AnswerverifiedShow Answer

A decrease in the overall price level or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Correct Answerverifieddeflation,...View AnswerShow Answer

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

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Higher inflation

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If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

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In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

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The data on hyperinflation show a clear link between the quantity of money and

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If the number of dollars needed to buy a representative basket of goods falls, the price level

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Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is

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Which of the following is not correct?

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According to the classical dichotomy, which of the following is affected by monetary factors?

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Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

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If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

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High and unexpected inflation has a greater cost

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A decrease in the overall price level or falling prices) is called _. An extraordinarily high rate of inflation is called _.

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deflation,...
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