Question 1

The costs of changing price tags and price listings are known as

Accepted Answer

A)   inflation-induced tax distortions.
B)   relative-price variability costs.
C)   shoeleather costs.
D)   menu costs.E) B) and D)
F) B) and C)

Question 2

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent. This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) A) and D)
F) A) and C)

Question 3

Velocity is

Accepted Answer

A)   Y/(M x P)  and increases if dollars are exchanged less frequently.
B)   Y/(M x P)  and increases if dollars are exchanged more frequently.
C)   (P x Y) /M and increases if dollars are exchanged less frequently.
D)   (P x Y) /M and increases if dollars are exchanged more frequently.E) All of the above
F) None of the above

Question 4

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)   Austria in the 1920's.
B)   Hungary in the 1920's.
C)   Poland in the 1920's.
D)   All of the above are correct.E) B) and D)
F) A) and D)

Question 5

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A)   His real and nominal salary have risen.
B)   His real and nominal salary have fallen.
C)   His real salary has risen and his nominal salary has fallen.
D)   His real salary has fallen and his nominal salary has risen.E) C) and D)
F) A) and D)

Question 6

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A)   mean that only real interest earnings are taxed.
B)   mean an end to taxing capital gains.
C)   mean an increase in average tax rates.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 7

In the 1970s, the U.S. inflation rate reached about

Accepted Answer

A)   7 percent per year.
B)   10 percent per year.
C)   14 percent per year.
D)   20 percent per year.E) B) and C)
F) A) and B)

Question 8

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in...

Question 9

The nominal interest rate is 3.5 percent and the inflation rate is 1.5 percent. What is the real interest rate?

Accepted Answer

A)   5.25 percent
B)   5 percent
C)   2.3 percent
D)   2 percentE) B) and C)
F) C) and D)

Question 10

Money neutrality states that a change in the money supply affects _____ variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the _____.

Accepted Answer

The answer of Money neutrality states that a change in...

Question 11

With the value of money on the vertical axis, the money supply curve is

Accepted Answer

A)   upward sloping because people supply a larger quantity of money when the value of money increases.
B)   downward sloping because people supply a larger quantity of money when the value of money decreases.
C)   horizontal because we assume the central bank controls the money supply
D)   vertical because we assume the central bank controls the money supply.E) B) and C)
F) C) and D)

Question 12

When deciding how much to save, people care most about

Accepted Answer

A)   after-tax nominal interest rates.
B)   after-tax real interest rates.
C)   before-tax real interest rates.
D)   before-tax nominal interest rates.E) A) and B)
F) A) and C)

Question 13

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A)   both a nominal gain and a real gain.
B)   a nominal gain and a real loss.
C)   a nominal loss and a real gain.
D)   both a nominal loss and a real loss.E) A) and D)
F) A) and C)

Question 14

According to the quantity theory of money, a 3 percent increase in the money supply

Accepted Answer

A)   causes the price level to rise by 3 percent.
B)   causes the price level to rise by less than 3 percent.
C)   leaves the price level unchanged.
D)   causes the price level to fall by 3 percent.E) B) and C)
F) All of the above

Question 15

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. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   the Federal Reserve sells bonds.E) B) and C)
F) A) and B)

Question 16

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Accepted Answer

A)   Her real and nominal salary have risen.
B)   Her real and nominal salary have fallen.
C)   Her real salary has risen and her nominal salary has fallen.
D)   Her real salary has fallen and her nominal salary has risen.E) A) and B)
F) A) and C)

Question 17

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 18

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 19

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Accepted Answer

A)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
B)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
C)   your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
D)   your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.E) A) and B)
F) C) and D)

Question 20

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)   5.1 percent
B)   3.1 percent
C)   2.1 percent
D)   2.4 percentE) C) and D)
F) B) and D)

Exam 30: Money Growth and Inflation

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct AnswerverifiedShow Answer

When deciding how much to save, people care most about

Correct AnswerverifiedShow Answer

Velocity is

Correct AnswerverifiedShow Answer

With the value of money on the vertical axis, the money supply curve is

Correct AnswerverifiedShow Answer

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct AnswerverifiedShow Answer

In the 1970s, the U.S. inflation rate reached about

Correct AnswerverifiedShow Answer

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

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. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent. This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

The nominal interest rate is 3.5 percent and the inflation rate is 1.5 percent. What is the real interest rate?

Correct AnswerverifiedShow Answer

Money neutrality states that a change in the money supply affects _____ variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the _____.

Correct AnswerverifiedShow Answer

Indexing the tax system to take into account the effects of inflation would by itself

Correct AnswerverifiedShow Answer

The costs of changing price tags and price listings are known as

Correct AnswerverifiedShow Answer

According to the quantity theory of money, a 3 percent increase in the money supply

Correct AnswerverifiedShow Answer

Hyperinflations are associated with governments printing money to finance expenditures.

Correct AnswerverifiedShow Answer

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Correct AnswerverifiedShow Answer

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Correct AnswerverifiedShow Answer

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

Correct Answer
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The Fisher effect says that increases in...
View Answer

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Money neutrality states that a change in the money supply affects _ variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the _.

Correct Answer
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Correct Answer
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Relative prices are the value of one goo...
View Answer