Question 1

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci...

Question 2

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A)   is 1.5 times its old value.
B)   is 3 times its old value.
C)   is 6 times its old value.
D)   is the same as its old value.E) A) and C)
F) A) and B)

Question 3

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds, th...

Question 4

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Accepted Answer

A)   and a price index are both real variables.
B)   and a price index are both nominal variables.
C)   are real variables, and a price index is a nominal variable.
D)   are nominal variables, and a price index is a real variableE) B) and C)
F) A) and D)

Question 5

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Accepted Answer

A)   40 percent.
B)   33.3 percent.
C)   25 percent.
D)   50 percent.E) A) and B)
F) A) and C)

Question 6

When deflation exists,

Accepted Answer

A)   the real interest rate is less than the nominal interest rate.
B)   the real interest rate is greater than the nominal interest rate.
C)   the real interest rate and inflation are less than the nominal interest rate.
D)   prices rise.E) None of the above
F) C) and D)

Question 7

Over the past 80 years, the overall price level in the U.S. has experienced a(n)

Accepted Answer

A)   4-fold increase.
B)   10-fold increase.
C)   13-fold increase.
D)   17-fold increase.E) B) and C)
F) A) and D)

Question 8

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Accepted Answer

A)   Jane's nominal income and real income decreased this year.
B)   Jane's nominal income decreased this year, but her real income increased.
C)   Jane's nominal income and real income increased this year.
D)   Jane's nominal income increased this year, but her real income decreased.E) None of the above
F) A) and D)

Question 9

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A)   increases the price level and increases the value of money.
B)   increases the price level and decreases the value of money.
C)   decreases the price level and increases the value of money.
D)   decreases the price level and decreases the value of money.E) A) and B)
F) B) and C)

Question 10

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Accepted Answer

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

Question 11

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

Question 12

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 13

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 2.5 percent; the tax rate is 25 percent.
B)   Inflation is 3 percent; the tax rate is 20 percent.
C)   Inflation is 2 percent; the tax rate is 30 percent.
D)   The after-tax real interest rate is the same for all of the above.E) All of the above
F) A) and D)

Question 14

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A)   9 percent inflation in the United States.
B)   3.6 percent inflation in Russia.
C)   59 percent inflation in Venezuela.
D)   9.3 percent inflation in India.E) None of the above
F) B) and D)

Question 15

When inflation rises, the nominal interest rate

Accepted Answer

A)   rises, and people desire to hold more money.
B)   rises, and people desire to hold less money.
C)   falls, and people desire to hold more money.
D)   falls, and people desire to hold less moneyE) C) and D)
F) A) and B)

Question 16

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 17

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A)   Increases in the price level can be created by increases in money demand.
B)   Nominal incomes tend to rise at the same time that the price level is rising.
C)   As the price level rises, the value of a dollar falls.
D)   Inflation only changes nominal variables.E) All of the above
F) None of the above

Question 18

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)   the nominal wage.
B)   real output.
C)   real interest rates.
D)   the real wage.E) B) and C)
F) None of the above

Question 20

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Exam 22: Money Growth and Inflation

Over the past 80 years, the overall price level in the U.S. has experienced a(n)

Correct AnswerverifiedShow Answer

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds, th...View AnswerShow Answer

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Correct AnswerverifiedShow Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

When inflation rises, the nominal interest rate

Correct AnswerverifiedShow Answer

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Correct AnswerverifiedShow Answer

Which of the following helps to explain why the inflation fallacy is a fallacy?

Correct AnswerverifiedShow Answer

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Correct AnswerverifiedShow Answer

When deflation exists,

Correct AnswerverifiedShow Answer

Which of the following can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

Which country is correctly matched with its 2009 inflation rate?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

If the Fed conducts open market sales, the equilibrium value of money decreases and the equilibrium price level increases.

Correct AnswerverifiedShow Answer

Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Correct AnswerverifiedShow Answer

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Correct AnswerverifiedShow Answer

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Correct AnswerverifiedA decrease in veloci...View AnswerShow Answer

Correct Answer
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When the Fed sells government bonds, th...
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The classical dichotomy argues that nomi...
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Correct Answer
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A decrease in veloci...
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