Question 1

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 2

When the Consumer Price Index falls from 110 to 100

Accepted Answer

A)   there is inflation of 9.1% and the value of money decreases.
B)   there is deflation of 9.1% and the value of money increases.
C)   there is deflation of 10% and the value of money increases.
D)   there is inflation of 10% and the value of money decreases.E) A) and B)
F) None of the above

Question 3

Menu costs refers to

Accepted Answer

A)   resources used by people to maintain lower money holdings when inflation is high.
B)   resources used to price shop during times of high inflation.
C)   the distortion in incentives created by inflation when taxes do not adjust for inflation.
D)   the cost of more frequent price changes induced by higher inflation.E) B) and C)
F) A) and B)

Question 4

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   2.2 percent
B)   2.7 percent
C)   11.7 percent
D)   7.7 percentE) C) and D)
F) A) and C)

Question 5

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

Accepted Answer

A)   9 percent
B)   2 percent
C)   18 percent
D)   3 percentE) C) and D)
F) All of the above

Question 6

Suppose there is a surplus in the money market.

Accepted Answer

A)   This could have been created by an increase in the money supply. The value of money will rise.
B)   This could have been created by an increase in the money supply. The value of money will fall.
C)   This could have been created by a decrease in the money supply. The value of money will rise.
D)   This could have been created by a decrease in the money supply. The value of money will fall.E) None of the above
F) All of the above

Question 7

Which of the following statements about U.S. inflation is not correct?

Accepted Answer

A)   Low inflation was viewed as a triumph of President Carter's economic policy.
B)   There were long periods in the nineteenth century during which prices fell.
C)   The U.S. public has viewed inflation rates of even 7 percent as a major economic problem.
D)   The U.S. inflation rate has varied over time, but international data show even more variation.E) B) and D)
F) None of the above

Question 8

There was hyperinflation during the

Accepted Answer

A)   period 1880-1896 in the United States.
B)   1970s in the United States.
C)   early part of the current century in Zimbabwe.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)   inflation and nominal interest rates, but does not change real interest rates.
B)   inflation, nominal interest rates, and real interest rates.
C)   inflation and real interest rates, but does not change nominal interest rates.
D)   nominal interest rates and real interest rates, but does not change inflation.E) A) and C)
F) All of the above

Question 10

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

Accepted Answer

A)   4-fold increase.
B)   10-fold increase.
C)   13-fold increase.
D)   17-fold increase.E) None of the above
F) A) and C)

Question 11

If inflation is higher than what was expected,

Accepted Answer

A)   creditors receive a lower real interest rate than they had anticipated.
B)   creditors pay a lower real interest rate than they had anticipated.
C)   debtors receive a higher real interest rate than they had anticipated.
D)   debtors pay a higher real interest rate than they had anticipated.E) A) and B)
F) None of the above

Question 12

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Accepted Answer

A)   selling bonds on the open market, which would have raised the value of money.
B)   purchasing bonds on the open market, which would have raised the value of money.
C)   selling bonds on the open market, which would have raised the value of money
D)   purchasing bonds on the open market, which would have lowered the value of moneyE) B) and D)
F) A) and D)

Question 13

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Accepted Answer

A)   increases the price level by more than 4 percent.
B)   increases the price level by 4 percent.
C)   increases the price level by less than 4 percent.
D)   increases real GDP by 4 percent.E) B) and D)
F) All of the above

Question 14

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)   excess demand for money, so the price level will rise.
B)   excess demand for money, so the price level will fall.
C)   excess supply of money, so the price level will rise.
D)   excess supply of money, so the price level will fall.E) A) and B)
F) A) and C)

Question 15

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. the Fed increases the money supply.
b. people decide to demand less money at each value of money.

Accepted Answer

a. The Fed increases the money supply. W...

Question 17

If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Accepted Answer

A)   $250.
B)   $25,000.
C)   $1,000.
D)   $6,250.E) B) and D)
F) A) and B)

Question 18

Figure 30-1 
-Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the demand for goods and services decreases.
B)   the economy's ability to produce goods and services increases.
C)   the equilibrium price level decreases.
D)   None of the above is correct.E) C) and D)
F) A) and B)

Question 19

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

Accepted Answer

A)   will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
B)   will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.
C)   will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
D)   will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.E) C) and D)
F) B) and C)

Question 20

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

Open marke...

Exam 17: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

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In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Correct AnswerverifiedShow Answer

List and define any two of the costs of high inflation.

Correct AnswerverifiedThe costs include:Shoeleather costs: th...View AnswerShow Answer

Which of the following statements about U.S. inflation is not correct?

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Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Correct Answerverifieda. The Fed increases the money supply. W...View AnswerShow Answer

If inflation is higher than what was expected,

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There was hyperinflation during the

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Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Correct AnswerverifiedShow Answer

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Suppose there is a surplus in the money market.

Correct AnswerverifiedShow Answer

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after­tax real rate of interest

Correct AnswerverifiedShow Answer

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Correct AnswerverifiedShow Answer

Menu costs refers to

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If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Correct AnswerverifiedOpen marke...View AnswerShow Answer

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Correct AnswerverifiedShow Answer

When the Consumer Price Index falls from 110 to 100

Correct AnswerverifiedShow Answer

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

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If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The costs include:
Shoeleather costs: th...
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a. The Fed increases the money supply. W...
View 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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Correct Answer
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Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's aftertax real rate of interest

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Open marke...
View 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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Correct Answer
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