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Exam 30: Money Growth and Inflation

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Question 41

Multiple Choice

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If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

A) 6.75.
B) 3.00.
C) 1.33.
D) 1.50.

E) A) and B)
F) All of the above

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Question 42

Multiple Choice

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When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

A) and equilibrium quantity of money to increase.
B) and equilibrium quantity of money to decrease.
C) to increase, while the equilibrium quantity of money decreases.
D) to decrease, while the equilibrium quantity of money increases.

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

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Question 43

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If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

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

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

When the price level falls, the number of dollars needed to buy a representative basket of goods

The supply of money increases when

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold it for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after­tax gain? (Hint: What's the real value of the land in current prices?)

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

If the price level increased from 120 to 144, then what was the inflation rate?

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

If P = 4 and Y = 200, then which of the following pairs of values are possible?

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

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

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

When the price level rises, the number of dollars needed to buy a representative basket of goods