Question 1

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

Question 2

Consider the money market drawn with the value of money on the vertical axis.If money demand is unchanged and the price level rises,then

Accepted Answer

A)   the money supply must have increased,perhaps because the Fed bought bonds.
B)   the money supply must have increased,perhaps because the Fed sold bonds.
C)   the money supply must have decreased,perhaps because the Fed bought bonds.
D)   the money supply must have decreased,perhaps because the Fed sold bonds.E) A) and B)
F) C) and D)

Question 3

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 4

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

Accepted Answer

A)   velocity rose.If monetary neutrality holds the rise in velocity increased the ratio M/P.
B)   velocity rose.If monetary neutrality holds the rise in velocity decreased the ratio M/P.
C)   velocity fell.If monetary neutrality holds the fall in velocity increased the ratio M/P.
D)   velocity fell.If monetary neutrality holds the fall in velocity decreased the ratio M/P.E) All of the above
F) B) and D)

Question 5

According to the classical dichotomy,when the money supply doubles which of the following doubles?

Accepted Answer

A)   the price level and nominal GDP
B)   the price level and real GDP
C)   only real GDP
D)   only the price levelE) C) and D)
F) B) and D)

Question 6

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha...

Question 7

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

Accepted Answer

A)   either money demand or money supply shifts right.
B)   either money demand or money supply shifts left.
C)   money demand shifts right or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) B) and C)
F) A) and D)

Question 8

Tara deposits money into an account with a nominal interest rate of 6 percent.She expects inflation to be 2 percent.Her tax rate is 20 percent.Tara's after-tax real rate of interest

Accepted Answer

A)   will be 2.8 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent.
B)   will be 2.8 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent.
C)   will be 3.2 percent if inflation turns out to be 2 percent;it will be higher if inflation turns out to be higher than 2 percent.
D)   will be 3.2 percent if inflation turns out to be 2 percent;it will be lower if inflation turns out to be higher than 2 percent.E) B) and C)
F) A) and D)

Question 9

Suppose that M is fixed but that P falls.According to the quantity equation which of the following could both by themselves explain the decrease in P?

Accepted Answer

A)   Y rose,V rose
B)   Y fell,V fell
C)   Y rose,V fell
D)   Y fell,V roseE) None of the above
F) A) and B)

Question 10

In 1898,prospectors on the Klondike River discovered gold.This discovery caused an unexpected price level

Accepted Answer

A)   decrease that benefited creditors at the expense of debtors.
B)   decrease that benefited debtors at the expense of creditors.
C)   increase that benefited creditors at the expense of debtors.
D)   increase that benefited debtors at the expense of creditors.E) A) and C)
F) B) and D)

Question 11

On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

Accepted Answer

A)   and a price index are both real variables.
B)   and a price index are both nominal variables.
C)   are real variables,and a price index is a nominal variable.
D)   are nominal variables,and a price index is a real variableE) B) and D)
F) B) and C)

Question 12

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Accepted Answer

A)   both higher inflation and higher nominal interest rates.
B)   a higher inflation rate,but not higher nominal interest rates.
C)   a higher nominal interest rate,but not higher inflation.
D)   neither a higher inflation rate nor a higher nominal interest rate.E) All of the above
F) None of the above

Question 13

The theory that most economists rely on to explain inflation is called the __________.

Accepted Answer

The answer of The theory that most economists rely on...

Question 14

When the money market is drawn with the value of money on the vertical axis,the money demand curve slopes

Accepted Answer

A)   upward,because at higher prices people want to hold more money.
B)   downward,because at higher prices people want to hold more money.
C)   downward,because at higher price people want to hold less money.
D)   upward,because at higher prices people want to hold less money.E) A) and B)
F) All of the above

Question 15

You bought some shares of stock and,over the next year,the price per share increased by 5 percent and the price level increased by 8 percent.Before taxes,you experienced

Accepted Answer

A)   both a nominal gain and a real gain,and you paid taxes on the nominal gain.
B)   both a nominal gain and a real gain,and you paid taxes only on the real gain.
C)   a nominal gain and a real loss,and you paid taxes on the nominal gain.
D)   a nominal gain and a real loss,and you paid no taxes on the transaction.E) B) and C)
F) A) and B)

Question 16

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

Question 17

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) All of the above
F) A) and D)

Question 18

If P = 2 and Y = 1000,then which of the following pairs of values are possible?

Accepted Answer

A)   M = 500,V = 4
B)   M = 1500,V = 3
C)   M = 2000,V = 2
D)   M = 500,V = 1E) A) and D)
F) None of the above

Question 19

U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.

Accepted Answer

A) True 
 B)False

Question 20

In the fourteenth century,the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold,which was in use as a medium of exchange.We would predict that this increase in gold

Accepted Answer

A)   raised both the price level and the value of gold in Cairo.
B)   raised the price level,but decreased the value of gold in Cairo.
C)   lowered the price level,but increased the value of gold in Cairo.
D)   lowered both the price level and the value of gold in Cairo.E) B) and C)
F) A) and D)

Exam 30: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis,the money demand curve slopes

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Correct AnswerverifiedShow Answer

On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

Correct AnswerverifiedShow Answer

According to the classical dichotomy,when the money supply doubles which of the following doubles?

Correct AnswerverifiedShow Answer

U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.

Correct AnswerverifiedShow Answer

In 1898,prospectors on the Klondike River discovered gold.This discovery caused an unexpected price level

Correct AnswerverifiedShow Answer

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

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

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

If P = 2 and Y = 1000,then which of the following pairs of values are possible?

Correct AnswerverifiedShow Answer

In the fourteenth century,the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold,which was in use as a medium of exchange.We would predict that this increase in gold

Correct AnswerverifiedShow Answer

Suppose that M is fixed but that P falls.According to the quantity equation which of the following could both by themselves explain the decrease in P?

Correct AnswerverifiedShow Answer

There is evidence that the rate at which money changed hands rose during the German hyperinflation.This means that

Correct AnswerverifiedShow Answer

Tara deposits money into an account with a nominal interest rate of 6 percent.She expects inflation to be 2 percent.Her tax rate is 20 percent.Tara's after-tax real rate of interest

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Correct AnswerverifiedThe inflation tax refers to the fact tha...View AnswerShow Answer

When inflation rises,the nominal interest rate

Correct AnswerverifiedShow Answer

Consider the money market drawn with the value of money on the vertical axis.If money demand is unchanged and the price level rises,then

Correct AnswerverifiedShow Answer

The theory that most economists rely on to explain inflation is called the __________.

Correct AnswerverifiedShow Answer

You bought some shares of stock and,over the next year,the price per share increased by 5 percent and the price level increased by 8 percent.Before taxes,you experienced

Correct AnswerverifiedShow Answer

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The inflation tax refers to the fact tha...
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