Question 1

The price of a Honda Accord

Accepted Answer

A)   and the price of a Honda Accord divided by the price of a Honda Civic are both real variables.
B)   and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables.
C)   is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable.
D)   is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.E) A) and B)
F) A) and C)

Question 2

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

Accepted Answer

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

Question 3

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

Accepted Answer

A)   higher than he had expected, and the real value of the loan is higher than he had expected.
B)   higher than he had expected, and the real value of the loan is lower than he had expected.
C)   lower than he had expected, and the real value of the loan is higher than he had expected.
D)   lower then he had expected, and the real value of the loan is lower than he had expected.E) A) and B)
F) C) and D)

Question 4

Printing money to finance government expenditures

Accepted Answer

A)   causes the value of money to rise.
B)   imposes a tax on everyone who holds money.
C)   is the principal method by which the U.S. government finances its expenditures.
D)   causes prices to fall.E) All of the above
F) A) and B)

Question 5

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

Accepted Answer

A)   two percent and prices fell one percent.
B)   two percent and prices rose one percent.
C)   three percent and prices rose one percent.
D)   three percent and prices fell one percent.E) A) and B)
F) All of the above

Question 6

According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to and real GDP to .

Accepted Answer

double, re...

Question 7

Wealth is redistributed from debtors to creditors when inflation is

Accepted Answer

A)   high, whether it is expected or not.
B)   low, whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.E) A) and D)
F) A) and C)

Question 8

In order to maintain stable prices, a central bank must

Accepted Answer

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

Question 9

Wealth is redistributed from creditors to debtors when inflation is

Accepted Answer

A)   high, whether it is expected or not.
B)   low, whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.E) All of the above
F) None of the above

Question 10

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Accepted Answer

A)   M = $500, V = 4.
B)   M = $250, V = 8.
C)   M = $1,000, V = 2.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 11

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

Accepted Answer

The answer of It takes more money to purchase the...

Question 12

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

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded decreases.
D)   decreases, so the quantity of money demanded increases.E) A) and C)
F) B) and D)

Question 13

When the price level rises, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)   increases, and so the value of money rises.
B)   increases, and so the value of money falls.
C)   decreases, and so the value of money rises.
D)   decreases, and so the value of money fallsE) None of the above
F) C) and D)

Question 14

When inflation rises, firms make

Accepted Answer

A)   more frequent price changes. This raises their menu costs.
B)   more frequent price changes. This reduces their menu costs.
C)   less frequent price changes. This raises their menu costs.
D)   less frequent price changes. This reduces their menu costs.E) None of the above
F) A) and B)

Question 15

The inflation tax

Accepted Answer

A)   is an alternative to income taxes and government borrowing.
B)   taxes most those who hold the most money.
C)   is the revenue created when the government prints money.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 16

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Accepted Answer

A)   excess demand for money which causes the price level to rise.
B)   excess demand for money which causes the price level to fall.
C)   excess supply of money which causes the price level to rise.
D)   excess supply of money which causes the price level to fall.E) A) and B)
F) A) and C)

Question 17

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Accepted Answer

A) True 
 B)False

Question 18

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then

Accepted Answer

A)   when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services.
B)   when the money market is in equilibrium, one unit of goods and services sells for 33 cents.
C)   there is an excess demand for money if the value of money in terms of goods and services is 0.5.
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 19

According to the classical dichotomy, when the money supply doubles which of the following doubles?

Accepted Answer

A)   the price level and nominal GDP
B)   the price level and real GDP
C)   only real GDP
D)   only the price levelE) All of the above
F) B) and C)

Question 20

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A)   28.00 percent
B)   36.25 percent
C)   43.75 percent
D)   67.50 percentE) B) and C)
F) A) and D)

Exam 12: Money Growth and Inflation

When inflation rises, firms make

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The price of a Honda Accord

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In order to maintain stable prices, a central bank must

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According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to and real GDP to .

Correct Answerverifieddouble, re...View AnswerShow Answer

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS2, then

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According to the classical dichotomy, when the money supply doubles which of the following doubles?

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Printing money to finance government expenditures

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Wealth is redistributed from creditors to debtors when inflation is

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The inflation tax

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When the price level rises, the number of dollars needed to buy a representative basket of goods

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When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

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

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James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

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If P = 2 and Y = 1000, then which of the following pairs of values are possible?

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You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

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It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

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Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

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

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Wealth is redistributed from debtors to creditors when inflation is

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If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

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It takes more money to purchase the same amount of goods when prices _. Therefore, the value of your money has .

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