Question 1

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   4.8 percent
B)   5.4 percent
C)   7.2 percent
D)   4.2 percent.E) A) and B)
F) A) and C)

Question 2

Over the past 80 years, prices in the U.S. have risen on average about

Accepted Answer

A)   2 percent per year.
B)   4 percent per year.
C)   3.6 percent per year.
D)   6 percent per year.E) All of the above
F) B) and C)

Question 3

Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?

Accepted Answer

A)   both interest income and capital gains.
B)   interest income but not capital gains.
C)   capital gains but not interest income.
D)   neither interest income nor capital gains.E) B) and D)
F) All of the above

Question 4

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)   affect both nominal and real variables.
B)   affect neither nominal nor real variables.
C)   affect nominal variables, but not real variables.
D)   do not affect nominal variables, but do affect real variables.E) B) and D)
F) None of the above

Question 5

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as .

Accepted Answer

The answer of During hyperinflations, people desire to hold less...

Question 6

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Accepted Answer

A)   spend more so the value of a dollar rises.
B)   spend more so the value of a dollar falls.
C)   spend less so the value of a dollar rises.
D)   spend less so the value of a dollar falls.E) C) and D)
F) A) and B)

Question 7

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Accepted Answer

A)   the price level grew at about the same rate as the money supply.
B)   the price level grew at a much faster rate than the money supply.
C)   the price level grew at a much slower rate than the money supply.
D)   the inflation rate and the money supply growth rate do not appear to be related.E) A) and B)
F) B) and C)

Question 8

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

A)   unemployment
B)   the price level
C)   nominal interest rates
D)   All of the above are correct.E) B) and D)
F) A) and C)

Question 9

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Accepted Answer

rise, exce...

Question 10

The classical theory of inflation

Accepted Answer

A)   is also known as the quantity theory of money.
B)   was developed by some of the earliest economic thinkers.
C)   is used by most modern economists to explain the long-run determinants of the inflation rate.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 11

When money is neutral, which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price levelE) C) and D)
F) B) and D)

Question 12

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before­tax real capital gain?

Accepted Answer

A)   $1,300 - $1,0001.05)  and this is the gain he is to report on his income tax
B)   $1,300 - $1,0001.05)  but he is to report a $300 gain on his income tax
C)   $1,300 - $1,0001.07)  and this is the gain he is to report on his income tax
D)   $1,300 - $1,0001.07)  but he is to report a $300 gain on his income taxE) B) and C)
F) A) and C)

Question 13

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Accepted Answer

The answer of In the U.S., taxes are paid on...

Question 14

Other things the same, an increase in velocity means that

Accepted Answer

A)   transactions per dollar increase so the price level rises.
B)   transactions per dollar increase so the price level falls.
C)   transactions per dollar decrease so the price level rises.
D)   transactions per dollar decrease so the price level falls.E) A) and C)
F) C) and D)

Question 15

If the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?

Accepted Answer

The value ...

Question 16

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat...

Question 17

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Accepted Answer

A)   The nominal interest rate was 11 percent and the inflation rate was 5 percent.
B)   The nominal interest rate was 6 percent and the inflation rate was 5 percent.
C)   The nominal interest rate was 5 percent and the inflation rate was -1 percent.
D)   The nominal interest rate was 6 percent and the inflation rate was 1 percent.E) All of the above
F) A) and D)

Question 18

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A)   the inflation rate and growth of real GDP.
B)   the inflation rate but not the growth rate of real GDP.
C)   the growth rate of real GDP, but not the inflation rate.
D)   neither the inflation rate nor the growth rate of real GDP.E) None of the above
F) A) and B)

Question 19

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 20

When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right

Accepted Answer

A)   the price level must have risen
B)   the price level must have fallen.
C)   the price level rises if money supply shifts farther than money demand.
D)   the price level falls if money supply shifts farther than money demand.E) B) and C)
F) None of the above

Exam 17: Money Growth and Inflation

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Correct Answerverifiednominal interest rat...View AnswerShow Answer

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?

Correct AnswerverifiedShow Answer

Over the past 80 years, prices in the U.S. have risen on average about

Correct AnswerverifiedShow Answer

The classical theory of inflation

Correct AnswerverifiedShow Answer

When money is neutral, which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

You put money into an account and earn a real interest rate of 6 percent. Inflation is 3 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as .

Correct AnswerverifiedShow Answer

In the long run an increase in the money supply causes the price level to __________. The price level moves in this direction because an increase in the money supply creates __________ in the money market that causes people to ________ spending.

Correct Answerverifiedrise, exce...View AnswerShow Answer

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before­tax real capital gain?

Correct AnswerverifiedShow Answer

If the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?

Correct AnswerverifiedThe value ...View AnswerShow Answer

The classical dichotomy argues that changes in the money supply

Correct AnswerverifiedShow Answer

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right

Correct AnswerverifiedShow Answer

Other things the same, an increase in velocity means that

Correct AnswerverifiedShow Answer

The United States has never had deflation.

Correct AnswerverifiedShow Answer

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Correct AnswerverifiedShow Answer

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nominal interest rat...
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In the long run an increase in the money supply causes the price level to . The price level moves in this direction because an increase in the money supply creates in the money market that causes people to spending.

Correct Answer
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rise, exce...
View Answer

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's beforetax real capital gain?

Correct Answer
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The value ...
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In the U.S., taxes are paid on one's _ gains/returns. Therefore, a _ inflation rate encourages more saving.

Correct Answer
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