Question 1

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

Question 2

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 money.E) B) and D)
F) All of the above

Question 3

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)  either a rise in output or a rise in the rate at which money changes hands.
B)  either a rise in output or a fall in the rate at which money changes hands.
C)  either a fall in output or a rise in the rate at which money changes hands.
D)  either a fall in output or a fall in the rate at which money changes hands.E) A) and D)
F) A) and C)

Question 4

Figure 17-1 2 and the value of money is 2, then A) the quantity of money demanded is greater than the quantity supplied; the price level will rise. B) the quantity of money demanded is greater than the quantity supplied; the price level will fall. C) the quantity of money supplied is greater than the quantity demanded; the price level will rise. D) the quantity of money supplied is greater than the quantity demanded; the price level will fall." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise.
B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall.
C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise.
D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall.E) B) and C)
F) A) and D)

Question 5

From the early 1980's through the 1990's, the nominal interest rate

Accepted Answer

A)  fell because the Fed got inflation under control.
B)  fell because the Fed let inflation get out of control.
C)  rose because the Fed got inflation under control.
D)  rose because the Fed let inflation get out of control.E) B) and D)
F) B) and C)

Question 6

If the price level increased from 120 to 126, then what was the inflation rate?

Accepted Answer

A)  3 percent
B)  5 percent
C)  6 percent
D)  None of the above is correct.E) A) and D)
F) All of the above

Question 7

Suppose over some period of time the money supply tripled, velocity fell by half, 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) All of the above

Question 8

Suppose that in some tax year you earned a nominal interest rate of 4 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 2 percent. What was your tax rate?

Accepted Answer

A)  50 percent
B)  33.3 percent
C)  25 percent
D)  None of the above are correct.E) B) and C)
F) All of the above

Question 9

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before-tax real capital gain?

Accepted Answer

A)  $1,300 - $1,000(1.05)  and this is the gain he is to report on his income tax
B)  $1,300 - $1,000(1.05)  but he is to report a $300 gain on his income tax
C)  $1,300 - $1,000(1.07)  and this is the gain he is to report on his income tax
D)  $1,300 - $1,000(1.07)  but he is to report a $300 gain on his income taxE) A) and C)
F) None of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)  both the classical dichotomy and the quantity theory of money.
B)  the classical dichotomy, but not the quantity theory of money.
C)  the quantity theory of money, but not the classical dichotomy.
D)  neither the classical dichotomy nor the quantity theory of money.E) All of the above
F) A) and B)

Question 12

When inflation rises, the nominal interest rate

Accepted Answer

A)  rises, and people desire to hold more money.
B)  rises, and people desire to hold less money.
C)  falls, and people desire to hold more money.
D)  falls, and people desire to hold less moneyE) B) and D)
F) B) and C)

Question 13

Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?

Accepted Answer

A)  both interest income and capital gains.
B)  interest income but not capital gains.
C)  capital gains but not interest income.
D)  neither interest income nor capital gains.E) A) and D)
F) A) and C)

Question 14

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

Question 15

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 16

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

Accepted Answer

A)  demanded increases.
B)  demanded decreases.
C)  supplied increases.
D)  supplied decreases.E) B) and C)
F) A) and D)

Question 17

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A)  nominal and real GDP would rise by 5 percent.
B)  nominal GDP would rise by 5 percent; real GDP would be unchanged.
C)  nominal GDP would be unchanged; real GDP would rise by 5 percent.
D)  neither nominal GDP nor real GDP would change.E) None of the above
F) B) and C)

Question 18

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Accepted Answer

A) True 
 B)False

Question 19

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Question 20

In which case below does a person's purchasing power from saving increase the least?

Accepted Answer

A)  the nominal interest rate = 10% and inflation = 8%
B)  the nominal interest rate = 9% and inflation = 6%
C)  the nominal interest rate = 8% and inflation = 4%
D)  the nominal interest rate = 7% and inflation = 2%E) B) and D)
F) C) and D)

Exam 17: Money Growth and Inflation

When inflation rises, the nominal interest rate

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From the early 1980's through the 1990's, the nominal interest rate

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Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before-tax real capital gain?

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In which case below does a person's purchasing power from saving increase the least?

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Which of the following are U.S. taxpayers allowed to adjust for inflation for the purpose of income taxes?

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

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Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

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According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

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For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

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According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

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Figure 17-1 -Refer to Figure 17-1. If the money supply is MS2 and the value of money is 2, then

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

Correct AnswerverifiedShow Answer

Suppose that in some tax year you earned a nominal interest rate of 4 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 2 percent. What was your tax rate?

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Correct AnswerverifiedShow Answer

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

If the price level increased from 120 to 126, then what was the inflation rate?

Correct AnswerverifiedShow Answer

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

Correct AnswerverifiedShow Answer

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Figure 17-1 -Refer to Figure 17-1. If the money supply is MS₂ and the value of money is 2, then

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