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

Question 2

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Accepted Answer

A) True 
 B)False

Question 3

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Accepted Answer

A)   Y or V rise
B)   Y or V fall
C)   Y rises or V falls
D)   Y falls or V risesE) All of the above
F) A) and B)

Question 5

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

Question 6

The Fisher effect

Accepted Answer

A)   says the government can generate revenue by printing money.
B)   says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)   explains how higher money supply growth leads to higher inflation.
D)   explains how prices adjust to obtain equilibrium in the money market.E) A) and B)
F) All of the above

Question 7

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Accepted Answer

A)   10.5 percent
B)   20 percent
C)   5.5 percent
D)   3.2 percentE) C) and D)
F) None of the above

Question 8

When prices are falling, economists say that there is

Accepted Answer

A)   disinflation.
B)   deflation.
C)   a contraction.
D)   an inverted inflation.E) B) and C)
F) None of the above

Question 9

When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level,

Accepted Answer

A)   the price level will rise.
B)   the value of money will rise.
C)   money demand will shift leftward.
D)   money demand will shift rightward.E) B) and C)
F) None of the above

Question 10

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Accepted Answer

A)   both the nominal and the real interest rate fall.
B)   neither the nominal nor the real interest rate fall.
C)   the nominal interest rate falls, but the real interest rate does not.
D)   the real interest rate falls, but the nominal interest rate does not.E) A) and B)
F) B) and C)

Question 11

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)   6.75.
B)   3.00.
C)   1.33.
D)   1.50.E) A) and D)
F) All of the above

Question 13

Suppose there is a surplus in the money market.

Accepted Answer

A)   This could have been created by an increase in the money supply. The value of money will rise.
B)   This could have been created by an increase in the money supply. The value of money will fall.
C)   This could have been created by a decrease in the money supply. The value of money will rise.
D)   This could have been created by a decrease in the money supply. The value of money will fall.E) None of the above
F) B) and C)

Question 14

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010? A)  -33 percent B)  17 percent C)  50 percent D)  67 percent" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-3. At the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)   -33 percent
B)   17 percent
C)   50 percent
D)   67 percentE) A) and D)
F) C) and D)

Question 15

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

Accepted Answer

A) True 
 B)False

Question 16

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Accepted Answer

The after- tax nominal interes...

Question 17

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A)   the expected real interest rate is 7 percent.
B)   the expected real interest rate is 1 percent.
C)   the expected real interest rate is 1.33 percent.
D)   the expected real interest rate is 12 percent.E) A) and D)
F) All of the above

Question 18

The value of money falls. This might be because the Federal Reserve

Accepted Answer

A)   bought bonds, which increased the money supply.
B)   bought bonds, which decreased the money supply.
C)   sold bonds, which increased the money supply.
D)   sold bonds, which decreased the money supply.E) A) and D)
F) All of the above

Question 19

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Accepted Answer

A) True 
 B)False

Question 20

The supply of money is determined by

Accepted Answer

A)   the price level.
B)   the Treasury and Congressional Budget Office.
C)   the Federal Reserve System.
D)   the demand for money.E) A) and C)
F) B) and D)

Exam 12: Money Growth and Inflation

The Fisher effect

Correct Answer
verified

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Correct Answer
verified

Suppose there is a surplus in the money market.

Correct Answer
verified

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct Answer
verified

The value of money falls. This might be because the Federal Reserve

Correct Answer
verified

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level,

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

When prices are falling, economists say that there is

Correct Answer
verified

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Correct Answer
verified

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Correct Answer
verified
The after- tax nominal interes...
View Answer

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Correct Answer
verified

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Correct Answer
verified

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct Answer
verified

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

Correct Answer
verified

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Correct Answer
verified

The supply of money is determined by

Correct Answer
verified

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Correct Answer
verified

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

Correct Answer
verified

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

Correct Answer
verified

Exam 12: Money Growth and Inflation

The Fisher effect

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and expected inflation is 2.5 percent, then what is the real interest rate?

Correct AnswerverifiedShow Answer

Suppose there is a surplus in the money market.

Correct AnswerverifiedShow Answer

The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

The value of money falls. This might be because the Federal Reserve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level,

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

When prices are falling, economists say that there is

Correct AnswerverifiedShow Answer

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Correct AnswerverifiedShow Answer

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Correct AnswerverifiedThe after- tax nominal interes...View AnswerShow Answer

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level higher?

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Correct AnswerverifiedShow Answer

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

Correct AnswerverifiedShow Answer

The supply of money is determined by

Correct AnswerverifiedShow Answer

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

Correct AnswerverifiedShow Answer

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The after- tax nominal interes...
View Answer

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