Question 1

The shoeleather costs of inflation should be approximately the same for a medical doctor and for an unemployed worker.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a central bank sells government bonds.Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a central bank sells government bo...

Question 3

If a government supplies more money than the quantity people want to hold,

Accepted Answer

A)  spending will decrease and the price level will fall.
B)  spending will increase and the price level will rise.
C)  spending will remain constant but the price level will rise.
D)  there will be no change in the level of economic activity or prices; money is neutral.E) None of the above
F) B) and C)

Question 4

In the long run, an increase in the money supply tends to have an effect on real variables but no effect on nominal variables.

Accepted Answer

A) True 
 B)False

Question 5

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) C) and D)

Question 6

If money is neutral,

Accepted Answer

A)  an increase in the money supply does nothing.
B)  a change in the money supply only affects real variables such as real output.
C)  a change in the money supply reduces velocity proportionately; therefore there is no effect on either prices or real output.
D)  a change in the money supply only affects nominal variables such as prices and wages.
E)  the money supply cannot be changed because it is tied to a commodity such as gold.F) All of the above
G) B) and E) D

Question 7

The quantity theory of money concludes that an increase in the money supply causes a proportional

Accepted Answer

A)  increase in prices.
B)  increase in real output.
C)  decrease in velocity.
D)  increase in velocity.
E)  decrease in prices.F) D) and E)
G) None of the above

Question 8

Countries that employ an inflation tax do so because

Accepted Answer

A)  the governme doesn't understand the causes and consequences of inflation.
B)  government expenditures are high, and the government has inadequate tax collections and difficulty borrowing.
C)  an inflation tax is the most progressive (paid by the rich)  of all taxes.
D)  an inflation tax is the most equitable of all taxes.
E)  the government has a balanced budget.F) B) and D)
G) A) and E)

Question 9

Economists agree that increases in the money supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t...

Question 10

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 D)
F) A) and D)

Question 11

If real GDP falls and the nominal interest rate rises, then the equilibrium price level

Accepted Answer

A)  must fall.
B)  must rise.
C)  will fall if the effect of the decline in real GDP dominates.
D)  will fall if the effect of the increase in the nominal interest rate dominates.E) All of the above
F) B) and C)

Question 12

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods.How can this be?

Accepted Answer

Inflation has raised the general price l...

Question 13

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

Accepted Answer

A)  3 per cent.
B)  6 per cent.
C)  9 per cent.
D)  18 per cent.
E)  None of these answers.F) C) and E)
G) B) and C) A

Question 14

If actual inflation turns out to be greater than people had expected, then

Accepted Answer

A)  no redistribution occurred.
B)  wealth was redistributed to lenders from borrowers.
C)  the real interest rate is unaffected.
D)  wealth was redistributed to borrowers from lenders.E) A) and C)
F) C) and D) D

Question 15

If the price level were to double, the quantity of money demanded would double because people would need twice as much money to cover the same transactions.

Accepted Answer

A) True 
 B)False

Question 16

If the price level doubles,

Accepted Answer

A)  the quantity demanded of money falls by half.
B)  the value of money is cut by half.
C)  nominal income is unaffected.
D)  None of these answers.
E)  the money supply has halved.F) All of the above
G) B) and D)

Question 17

In the long run, inflation is caused by

Accepted Answer

A)  governments that raise taxes so high that it increases the cost of doing business and, hence, raise prices.
B)  banks that have market power and refuse to lend money.
C)  None of these answers.
D)  governments that print too much money.
E)  increases in the price of inputs, such as labour and oil.F) A) and D)
G) B) and E)

Question 18

If the money supply grows 5 per cent, and real output grows 2 per cent, prices should rise by

Accepted Answer

A)  5 per cent.
B)  more than 5 per cent.
C)  less than 5 per cent.
D)  None of these answers.E) B) and D)
F) A) and B)

Question 19

When prices rise at an extraordinarily fast rate, it is called

Accepted Answer

A)  disinflation.
B)  deflation.
C)  hyperinflation.
D)  inflation.
E)  hypoinflation.F) C) and D)
G) C) and E)

Question 20

Unanticipated inflation benefits

Accepted Answer

A)  investors at the expense of savers.
B)  publicly quoted companies at the expense of private partnerships.
C)  borrowers at the expense of lenders.
D)  taxpayers at the expense of government.E) B) and C)
F) A) and D)

Exam 10: Money Growth and Inflation

The shoeleather costs of inflation should be approximately the same for a medical doctor and for an unemployed worker.

Correct AnswerverifiedShow Answer

Suppose a central bank sells government bonds.Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When a central bank sells government bo...View AnswerShow Answer

If a government supplies more money than the quantity people want to hold,

Correct AnswerverifiedShow Answer

In the long run, an increase in the money supply tends to have an effect on real variables but no effect on nominal variables.

Correct AnswerverifiedShow Answer

When prices are falling, economists say that there is

Correct AnswerverifiedShow Answer

If money is neutral,

Correct AnswerverifiedD

The quantity theory of money concludes that an increase in the money supply causes a proportional

Correct AnswerverifiedShow Answer

Countries that employ an inflation tax do so because

Correct AnswerverifiedShow Answer

Economists agree that increases in the money supply growth rate increase inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically, the government in countries t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If real GDP falls and the nominal interest rate rises, then the equilibrium price level

Correct AnswerverifiedShow Answer

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods.How can this be?

Correct AnswerverifiedInflation has raised the general price l...View AnswerShow Answer

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

Correct AnswerverifiedA

If actual inflation turns out to be greater than people had expected, then

Correct AnswerverifiedD

If the price level were to double, the quantity of money demanded would double because people would need twice as much money to cover the same transactions.

Correct AnswerverifiedShow Answer

If the price level doubles,

Correct AnswerverifiedShow Answer

In the long run, inflation is caused by

Correct AnswerverifiedShow Answer

If the money supply grows 5 per cent, and real output grows 2 per cent, prices should rise by

Correct AnswerverifiedShow Answer

When prices rise at an extraordinarily fast rate, it is called

Correct AnswerverifiedShow Answer

Unanticipated inflation benefits

Correct AnswerverifiedShow Answer

Correct Answer
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When a central bank sells government bo...
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D

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Typically, the government in countries t...
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Inflation has raised the general price l...
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A

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D

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