Question 1

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

Accepted Answer

The classical dichotomy argues that nomi...

Question 2

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 3

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run.
B)   does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
C)   does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run.
D)   does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.E) None of the above
F) All of the above

Question 4

Over the last 80 years, the average annual U.S. inflation rate was about

Accepted Answer

A)   3.6 percent, implying that prices have increased 16-fold.
B)   4 percent, implying that prices have increased 17-fold.
C)   4 percent, implying that prices have increased 16-fold.
D)   3.6 percent, implying that prices increased about 17-fold.E) All of the above
F) B) and C)

Question 5

Between 1880 and 1896 the average level of prices in the U.S. economy

Accepted Answer

A)   fell 23 percent.
B)   fell 4 percent.
C)   rose 23 percent.
D)   rose 50 percent.E) B) and C)
F) C) and D)

Question 6

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)   increases the real interest rate and the after-tax real rate of interest.
B)   increases the real interest rate and the after-tax real rate of interest.
C)   does not change the real interest rate but raises the after tax real rate of interest.
D)   does not change the real interest rate but reduces the after-tax real rate of interest.E) A) and B)
F) A) and C)

Question 7

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old value.E) A) and B)
F) B) and D)

Question 8

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Accepted Answer

The answer of You earn a nominal return of 6%...

Question 9

The value of money falls as the price level

Accepted Answer

A)   rises, because the number of dollars needed to buy a representative basket of goods rises.
B)   rises, because the number of dollars needed to buy a representative basket of goods falls.
C)   falls, because the number of dollars needed to buy a representative basket of goods rises.
D)   falls, because the number of dollars needed to buy a representative basket of goods falls.E) B) and C)
F) All of the above

Question 10

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?

Accepted Answer

A)   the price level and velocity.
B)   the price level but not velocity.
C)   velocity but not the price level.
D)   neither the price level nor velocity.E) B) and C)
F) C) and D)

Question 11

The price level is a

Accepted Answer

A)   relative variable.
B)   dichotomous variable
C)   real variable.
D)   nominal variable.E) B) and D)
F) A) and B)

Question 12

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Accepted Answer

A)   2,000.
B)   200,000.
C)   12,500.
D)   32,000.E) B) and C)
F) C) and D)

Question 13

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Accepted Answer

A) True 
 B)False

Question 14

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after­tax real rate of interest

Accepted Answer

A)   will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
B)   will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
C)   will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
D)   will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.E) B) and D)
F) All of the above

Question 15

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Accepted Answer

debtors/bo...

Question 16

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 C)
F) A) and B)

Question 17

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Accepted Answer

A)   the value of money rises which will make people desire to hold more money.
B)   the value of money rises which will make people desire to hold less money.
C)   the value of money falls which will make people desire to hold more money.
D)   the value of money falls which will make people desire to hold less money.E) A) and B)
F) None of the above

Question 18

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

Accepted Answer

The answer of Your grandfather tells you that his annual...

Question 19

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Accepted Answer

hyperinfla...

Question 20

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Accepted Answer

A)   the supply of money decreases and the value of money rises.
B)   the supply of money increases and the value of money falls.
C)   the demand for money increases and the value of money rises.
D)   the demand for money decreases and the value of money falls.E) None of the above
F) A) and C)

Exam 30: Money Growth and Inflation

Correct Answer
verified

The value of money falls as the price level

Correct Answer
verified

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Correct Answer
verified

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 Answer
verified
The value ...
View Answer

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

Correct Answer
verified

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

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Correct Answer
verified

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?

Correct Answer
verified

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

Correct Answer
verified

Between 1880 and 1896 the average level of prices in the U.S. economy

Correct Answer
verified

The price level is a

Correct Answer
verified

Monetary neutrality means that a change in the money supply

Correct Answer
verified

Over the last 80 years, the average annual U.S. inflation rate was about

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Correct Answer
verified

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Correct Answer
verified
hyperinfla...
View Answer

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct Answer
verified

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.

Correct Answer
verified
debtors/bo...
View Answer

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Correct Answer
verified

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's aftertax real rate of interest

Correct Answer
verified

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Correct Answer
verified

Exam 30: Money Growth and Inflation

Correct AnswerverifiedShow Answer

The value of money falls as the price level

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

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 economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

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

You earn a nominal return of 6% on your savings and the tax rate is 20%. If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate of return?

Correct AnswerverifiedShow Answer

The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?

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

Between 1880 and 1896 the average level of prices in the U.S. economy

Correct AnswerverifiedShow Answer

The price level is a

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

Over the last 80 years, the average annual U.S. inflation rate was about

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Correct AnswerverifiedShow Answer

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Correct Answerverifiedhyperinfla...View AnswerShow Answer

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct AnswerverifiedShow Answer

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Correct Answerverifieddebtors/bo...View AnswerShow Answer

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Correct AnswerverifiedShow Answer

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after­tax real rate of interest

Correct AnswerverifiedShow Answer

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The value ...
View Answer

Correct Answer
verified

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
hyperinfla...
View Answer

Correct Answer
verified

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.

Correct Answer
verified
debtors/bo...
View Answer

Correct Answer
verified

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's aftertax real rate of interest

Correct Answer
verified

Correct Answer
verified