Question 1

The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera (the local currency)  in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)   -20 percent
B)   20 percent
C)   42 percent
D)   64 percentE) B) and C)
F) A) and C)

Question 2

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Accepted Answer

A)   lenders and people holding a lot of currency
B)   lenders but not people holding a lot of currency
C)   people holding a lot of currency but not lenders
D)   neither lenders nor people holding a lot of currencyE) All of the above
F) None of the above

Question 3

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) A) and B)
F) None of the above

Question 4

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

Question 5

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Accepted Answer

A)   Unemployment
B)   Productivity
C)   Inflation
D)   Monetary policyE) A) and C)
F) A) and B) C

Question 6

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Accepted Answer

A)   8 percent
B)   15 percent
C)   2 percent
D)   1.7 percentE) All of the above
F) A) and B)

Question 7

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False  False

Question 8

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 9

If the Fed increases the money supply, then 1/P

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

Question 10

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)   dichotomous variables.
B)   nominal variables.
C)   classical variables.
D)   real variables.E) A) and D)
F) C) and D)

Question 11

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Accepted Answer

A)   135
B)   132
C)   125
D)   121E) B) and C)
F) A) and D)

Question 12

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Accepted Answer

A)   The dollar price of jeans and the relative price of jeans are both nominal variables.
B)   The dollar price of jeans and the relative price of jeans are both real variables.
C)   The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable.
D)   The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable.E) All of the above
F) B) and D)

Question 13

Relative-price variability

Accepted Answer

A)   rises with inflation, leading to an improved allocation of resources.
B)   rises with inflation, leading to a misallocation of resources.
C)   falls with inflation, leading to an improved allocation of resources.
D)   falls with inflation, leading to a misallocation of resources.E) All of the above
F) C) and D)

Question 14

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A)   shift to the right of the money demand curve.
B)   shift to the left of the money demand curve.
C)   movement to the left along the money demand curve.
D)   movement to the right along the money demand curve.E) All of the above
F) A) and D)

Question 15

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

Question 16

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Accepted Answer

A)   nominal wage is higher.
B)   nominal wage is lower.
C)   real wage is higher.
D)   real wage is lower.E) B) and C)
F) None of the above

Question 17

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) A) and C)

Question 18

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. What quantity is measured along the horizontal axis?

Accepted Answer

A)   the price level
B)   the real interest rate
C)   the value of money
D)   the quantity of moneyE) All of the above
F) B) and C)

Question 19

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Accepted Answer

The nominal interest...

Question 20

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

Exam 30: Money Growth and Inflation

Correct Answer
verified

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Correct Answer
verified

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
verified

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

Correct Answer
verified

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Correct Answer
verified
C

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Correct Answer
verified

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct Answer
verified
False

The quantity equation is M x V = P x Y.

Correct Answer
verified

If the Fed increases the money supply, then 1/P

Correct Answer
verified

Economic variables whose values are measured in monetary units are called

Correct Answer
verified

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Correct Answer
verified

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Correct Answer
verified

Relative-price variability

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Correct Answer
verified

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

Correct Answer
verified
C

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Correct Answer
verified

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

Correct Answer
verified

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. What quantity is measured along the horizontal axis?

Correct Answer
verified

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Correct Answer
verified
The nominal interest...
View 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 Answer
verified

Exam 30: Money Growth and Inflation

Correct AnswerverifiedShow Answer

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

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

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

Correct AnswerverifiedShow Answer

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Correct AnswerverifiedC

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct AnswerverifiedFalse

The quantity equation is M x V = P x Y.

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, then 1/P

Correct AnswerverifiedShow Answer

Economic variables whose values are measured in monetary units are called

Correct AnswerverifiedShow Answer

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Correct AnswerverifiedShow Answer

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Correct AnswerverifiedShow Answer

Relative-price variability

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Correct AnswerverifiedShow 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

Correct AnswerverifiedShow Answer

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. What quantity is measured along the horizontal axis?

Correct AnswerverifiedShow Answer

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Correct AnswerverifiedThe nominal interest...View AnswerShow 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

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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C

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False

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C

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The nominal interest...
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Correct Answer
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