Question 1

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A)   menu costs and shoeleather costs
B)   menu costs but not shoeleather costs
C)   shoeleather costs but not menu costs
D)   menu costs but not shoeleather costs.E) C) and D)
F) A) and D)

Question 2

Which of the following is an example of menu costs?

Accepted Answer

A)   deciding on new prices
B)   printing new price lists
C)   advertising new prices
D)   All of the above are examples of menu costs.E) A) and D)
F) All of the above

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

Question 4

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Accepted Answer

A)   8 percent
B)   15 percent
C)   2 percent
D)   1.7 percentE) B) and C)
F) C) and D)

Question 5

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Accepted Answer

The answer of An increase in the price level means...

Question 6

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

A)   real GDP.
B)   real wages.
C)   real interest rates.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 7

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Accepted Answer

A)   the money supply and the price level increase.
B)   the money supply and the price level decrease.
C)   the money supply increases and the price level decreases.
D)   the money supply increases and the price level increases.E) A) and B)
F) All of the above

Question 8

Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money she holds?

Accepted Answer

A)   $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
B)   $120. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
C)   15 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)   15 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) None of the above
F) B) and C)

Question 9

The Fisher effect says that

Accepted Answer

A)   the nominal interest rate adjusts one for one with the inflation rate.
B)   the growth rate of the money supply is negatively related to the velocity of money.
C)   real variables are heavily influenced by the monetary system.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 10

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who borrow than for those who save.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 11

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)   inflation and nominal interest rates, but does not change real interest rates.
B)   inflation, nominal interest rates, and real interest rates.
C)   inflation and real interest rates, but does not change nominal interest rates.
D)   nominal interest rates and real interest rates, but does not change inflation.E) A) and B)
F) B) and C)

Question 12

Relative-price variability

Accepted Answer

A)   rises with inflation, leading to an improved allocation of resources.
B)   rises with inflation, leading to a misallocation of resources.
C)   falls with inflation, leading to an improved allocation of resources.
D)   falls with inflation, leading to a misallocation of resources.E) None of the above
F) All of the above

Question 13

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat...

Question 14

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Accepted Answer

A)   3.5 percent and a real interest rate of 5 percent.
B)   3.5 percent and a real interest rate of 2 percent.
C)   5 percent and a real interest rate of 3.5 percent
D)   5 percent and a real interest rate of 2 percentE) All of the above
F) A) and D)

Question 15

Which of the following is correct?

Accepted Answer

A)   Inflation impedes financial markets in their role of allocating savings to alternative investments.
B)   Inflation encourages savings through the tax treatment on capital gains.
C)   Inflation encourages larger holdings of currency by the public.
D)   Inflation reduces people's real purchasing power.E) None of the above
F) A) and D)

Question 16

The price level rises if either

Accepted Answer

A)   money demand or money supply shifts rightward.
B)   money demand shifts rightward or money supply shifts leftward.
C)   money demand shifts leftward or money supply shifts rightward.
D)   money demand or money supply shifts leftward.E) A) and D)
F) B) and C)

Question 17

If velocity and output were nearly constant, then

Accepted Answer

A)   the inflation rate would be much higher than the money supply growth rate.
B)   the inflation rate would be about the same as the money supply growth rate.
C)   the inflation rate would be much lower than the money supply growth rate.
D)   any of the above would be possible.E) A) and B)
F) C) and D)

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

Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Accepted Answer

A)   is 1.5 times its old value.
B)   is 3 times its old value.
C)   is 6 times its old value.
D)   is the same as its old value.E) None of the above
F) All of the above

Question 20

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

Accepted Answer

A)   1.
B)   1.5.
C)   2.
D)   4.5.E) C) and D)
F) B) and D)

Exam 12: Money Growth and Inflation

The nominal interest rate is 5 percent and the real interest rate is 3 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

The Fisher effect says that

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According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

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High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Correct Answerverifiednominal interest rat...View AnswerShow Answer

Relative-price variability

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Shoeleather costs arise when higher inflation rates induce people to

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If velocity and output were nearly constant, then

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An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Correct AnswerverifiedShow Answer

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Correct AnswerverifiedShow Answer

Which of the following is correct?

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Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

Correct AnswerverifiedShow Answer

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Correct AnswerverifiedShow Answer

The price level rises if either

Correct AnswerverifiedShow Answer

Which of the following is an example of menu costs?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Correct AnswerverifiedShow Answer

Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

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nominal interest rat...
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An increase in the price level means that a dollar buys goods and services so the value of a dollar .

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