Question 1

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) All of the above
F) None of the above

Question 2

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

Accepted Answer

A)   menu costs
B)   inflation tax
C)   shoeleather costs
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 3

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)   spend more time looking for bargains.
B)   spend less time looking for bargains.
C)   hold more money.
D)   hold less money.E) None of the above
F) All of the above

Question 4

Figure 22-1 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 22-1.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) None of the above

Question 5

The value of money rises as the price level

Accepted Answer

A)   rises,because the number of dollars needed to buy a representative basket of goods rises.
B)   rises,because the number of dollars needed to buy a representative basket of goods falls.
C)   falls,because the number of dollars needed to buy a representative basket of goods rises.
D)   falls,because the number of dollars needed to buy a representative basket of goods falls.E) C) and D)
F) A) and B)

Question 6

Suppose that velocity rises while the money supply stays the same.It follows that

Accepted Answer

A)   P x Y must rise.
B)   P x Y must fall.
C)   P x Y must be unchanged.
D)   the effects on P x Y are uncertain.E) A) and C)
F) C) and D)

Question 7

Serena purchased 10 shares of GLC,Inc.stock for $200 per share; one year later she sold the 10 shares for $220 a share.Over the year,the price level increased from 135.0 to 143.1.The tax rate on capital gains is 50 percent.If the capital gains tax is on nominal gains,how much tax does Serena pay on her gain?

Accepted Answer

A)   $90
B)   $95
C)   $100
D)   None of the above is correct.E) C) and D)
F) A) and D)

Question 8

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 9

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Accepted Answer

A)   a real interest rate of 2.5 percent and an inflation rate of 2 percent
B)   a real interest rate of 4 percent and an inflation rate of 11 percent
C)   a real interest rate of 6 percent and an inflation rate of 1 percent
D)   a real interest rate of 5.5 percent and an inflation rate of 3 percentE) All of the above
F) B) and C)

Question 13

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A)   are positively related,which is consistent with the quantity theory of money.
B)   are positively related,which is not consistent with the quantity theory of money.
C)   are not related in a discernible fashion,which is consistent with the quantity theory of money.
D)   are not related in a discernible fashion,which is not consistent with the quantity theory of money.E) A) and C)
F) B) and D)

Question 14

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

Accepted Answer

A)   upward-sloping.
B)   downward-sloping.
C)   horizontal.
D)   vertical.E) B) and D)
F) A) and B)

Question 15

Which of the following is correct? Inflation

Accepted Answer

A)   impedes financial markets in their role of allocating resources.
B)   reduces the purchasing power of the average consumer.
C)   generally increases after-tax real interest rates.
D)   is most costly when anticipated.E) A) and D)
F) All of the above

Question 16

Inflation induces people to spend more resources maintaining lower money holdings.The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 17

You put money into an account and earn a real interest rate of 4 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   1.2 percent
B)   2.8 percent
C)   4.8 percent
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 18

The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

Accepted Answer

A)   6 percent
B)   5 percent
C)   1.5 percent
D)   1 percentE) B) and C)
F) None of the above

Question 19

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)   Friedman Effect.
B)   Hume Effect.
C)   Fisher Effect.
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 22: Money Growth and Inflation

Correct Answer
verified

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct Answer
verified

Dollar prices and relative prices are both nominal variables.

Correct Answer
verified

The money demand curve shifts to the left when the Fed buys government bonds.

Correct Answer
verified

The evidence from hyperinflations indicates that money growth and inflation

Correct Answer
verified

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

Correct Answer
verified

The value of money rises as the price level

Correct Answer
verified

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

Correct Answer
verified

Shoeleather costs arise when higher inflation rates induce people to

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

Suppose that velocity rises while the money supply stays the same.It follows that

Correct Answer
verified

Which of the following is correct? Inflation

Correct Answer
verified

The United States has never had deflation.

Correct Answer
verified

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Correct Answer
verified

The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

Correct Answer
verified

Figure 22-1 -Refer to Figure 22-1.If the money supply is MS₂ and the value of money is 2,then

Correct Answer
verified

You put money into an account and earn a real interest rate of 4 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Correct Answer
verified

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

Correct Answer
verified

Inflation induces people to spend more resources maintaining lower money holdings.The costs of doing this are called shoeleather costs.

Correct Answer
verified

Exam 22: Money Growth and Inflation

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

Dollar prices and relative prices are both nominal variables.

Correct AnswerverifiedShow Answer

The money demand curve shifts to the left when the Fed buys government bonds.

Correct AnswerverifiedShow Answer

The evidence from hyperinflations indicates that money growth and inflation

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The value of money rises as the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Shoeleather costs arise when higher inflation rates induce people to

Correct AnswerverifiedShow Answer

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

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

Suppose that velocity rises while the money supply stays the same.It follows that

Correct AnswerverifiedShow Answer

Which of the following is correct? Inflation

Correct AnswerverifiedShow Answer

The United States has never had deflation.

Correct AnswerverifiedShow Answer

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Correct AnswerverifiedShow Answer

The nominal interest rate is 3 percent and the inflation rate is 2 percent.What is the real interest rate?

Correct AnswerverifiedShow Answer

Figure 22-1 -Refer to Figure 22-1.If the money supply is MS2 and the value of money is 2,then

Correct AnswerverifiedShow Answer

You put money into an account and earn a real interest rate of 4 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Inflation induces people to spend more resources maintaining lower money holdings.The costs of doing this are called shoeleather costs.

Correct AnswerverifiedShow Answer

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Figure 22-1 -Refer to Figure 22-1.If the money supply is MS₂ and the value of money is 2,then

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