Question 1

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Accepted Answer

A)   both a nominal gain and a real gain.
B)   a nominal gain and a real loss.
C)   a nominal loss and a real gain.
D)   both a nominal loss and a real loss.E) C) and D)
F) All of the above

Question 2

Real GDP measures output of final goods and services in physical units.

Accepted Answer

A) True 
 B)False

Question 3

In which of the following cases was the inflation rate 12 percent over the last year?

Accepted Answer

A)   One year ago the price index had a value of 110 and now it has a value of 120.
B)   One year ago the price index had a value of 120 and now it has a value of 132.
C)   One year ago the price index had a value of 134 and now it has a value of 150.
D)   One year ago the price index had a value of 145 and now it has a value of 163.E) A) and B)
F) A) and C)

Question 4

The primary reason people hold money is

Accepted Answer

A)   to keep wealth in a less liquid form.
B)   to use it as a medium of exchange.
C)   to use it for investment.
D)   to earn interest.E) All of the above
F) A) and B)

Question 5

In the last part of the 1800's

Accepted Answer

A)   deflation made it harder for farmers to pay off their debt.
B)   deflation made it easier for farmers to pay off their debt.
C)   inflation made it harder for farmers to pay off their debt.
D)   inflation made it easier for farmers to pay off their debt.E) B) and D)
F) A) and B)

Question 6

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)   increases the real interest rate and the after-tax real rate of interest.
B)   increases the real interest rate and the after-tax real rate of interest
C)   does not change the real interest rate but raises the after tax real rate of interest
D)   does not change the real interest rate but reduces the after-tax real rate of interestE) A) and C)
F) B) and C)

Question 7

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A)   the inflation rate and the nominal interest rate by the same number of percentage points.
B)   nominal interest rates but by less than the percentage point increase in the inflation rate.
C)   the inflation rate but not the nominal interest.
D)   neither the inflation rate nor the nominal interest rate.E) B) and D)
F) B) and C)

Question 8

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 9

Most economists believe that monetary neutrality provides

Accepted Answer

A)   a good description of both the long run and the short run.
B)   a good description of neither the long run nor the short run.
C)   a good description of the short run, but not the long run.
D)   a good description of the long run, but not the short run.E) All of the above
F) None of the above

Question 10

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Accepted Answer

A)   she really is worse off.
B)   her real income increased eight percent.
C)   menu costs have reduced her purchasing power.
D)   she is committing the inflation fallacy.E) A) and D)
F) B) and C)

Question 11

If V and M are constant and Y doubles, the quantity equation implies that the price level

Accepted Answer

A)   falls to half its original level.
B)   does not change.
C)   doubles.
D)   more than doubles.E) None of the above
F) A) and D)

Question 12

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. the Fed increases the money supply.
b. people decide to demand less money at each value of money.

Accepted Answer

a. The Fed increases the money supply. W...

Question 13

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Accepted Answer

A)   $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
B)   8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
C)   $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
D)   8 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) A) and D)
F) A) and C)

Question 14

As the price level rises, the value of money

Accepted Answer

A)   increases, so people must hold less money to purchase goods and services.
B)   increases, so people must hold more money to purchase goods and services.
C)   decreases, so people must hold more money to purchase goods and services.
D)   decreases, so people must hold less money to purchase goods and services.E) C) and D)
F) B) and C)

Question 15

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)   the quantity theory and evidence from four hyperinflations during the 1920's
B)   the quantity theory but not evidence from four hyperinflations during the 1920's
C)   evidence from four hyperinflations during the 1920's but not the quantity theory
D)   neither the quantity theory nor evidence from four hyperinflation during the 1920'sE) C) and D)
F) B) and D)

Question 16

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Accepted Answer

A)   quantity theory of money.
B)   price-index theory of money.
C)   theory of hyperinflation.
D)   disequilibrium theory of money and inflation.E) C) and D)
F) B) and C)

Question 17

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

Accepted Answer

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

Question 18

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 19

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A)   Steve had both the higher before-tax real gain and the higher after-tax real gain.
B)   Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
C)   Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain.
D)   Stephanie had both the higher before-tax real gain and the higher after-tax real gain.E) None of the above
F) C) and D)

Question 20

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to

Accepted Answer

A)   2,500.
B)   7,500.
C)   10,000.
D)   40,000.E) C) and D)
F) All of the above

Exam 12: Money Growth and Inflation

In which of the following cases was the inflation rate 12 percent over the last year?

Correct Answer
verified

The primary reason people hold money is

Correct Answer
verified

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct Answer
verified

Real GDP measures output of final goods and services in physical units.

Correct Answer
verified

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct Answer
verified

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Correct Answer
verified

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Correct Answer
verified

In the last part of the 1800's

Correct Answer
verified

As the price level rises, the value of money

Correct Answer
verified

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Correct Answer
verified

If V and M are constant and Y doubles, the quantity equation implies that the price level

Correct Answer
verified

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Correct Answer
verified
a. The Fed increases the money supply. W...
View Answer

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

Correct Answer
verified

Most economists believe that monetary neutrality provides

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Correct Answer
verified

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Correct Answer
verified

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct Answer
verified

Exam 12: Money Growth and Inflation

In which of the following cases was the inflation rate 12 percent over the last year?

Correct AnswerverifiedShow Answer

The primary reason people hold money is

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

Real GDP measures output of final goods and services in physical units.

Correct AnswerverifiedShow Answer

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct AnswerverifiedShow Answer

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

In the last part of the 1800's

Correct AnswerverifiedShow Answer

As the price level rises, the value of money

Correct AnswerverifiedShow Answer

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Correct AnswerverifiedShow Answer

If V and M are constant and Y doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Correct Answerverifieda. The Fed increases the money supply. W...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Most economists believe that monetary neutrality provides

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

Correct AnswerverifiedShow Answer

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Correct AnswerverifiedShow Answer

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Relative prices are the value of one goo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. The Fed increases the money supply. W...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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