Question 1

Interest rates adjusted for the effects of inflation

Accepted Answer

A)  and inflation are nominal variables.
B)  and inflation are real variables.
C)  are real variables; inflation is a nominal variable.
D)  are nominal variables; inflation is a real variable.E) B) and C)
F) None of the above

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) A) and C)

Question 3

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before-tax real capital gain?

Accepted Answer

A)  $1,300 - $1,000(1.05)  and this is the gain he is to report on his income tax
B)  $1,300 - $1,000(1.05)  but he is to report a $300 gain on his income tax
C)  $1,300 - $1,000(1.07)  and this is the gain he is to report on his income tax
D)  $1,300 - $1,000(1.07)  but he is to report a $300 gain on his income taxE) B) and D)
F) B) and C)

Question 4

The inflation tax falls mostly heavily on

Accepted Answer

A)  those who hold a lot of currency and accounts for a large share of U.S. government revenue.
B)  those who hold a lot of currency but accounts for a small share of U.S. government revenue.
C)  those who hold little currency and accounts for a large share of U.S. government revenue.
D)  those who hold little currency but accounts for a small share of U.S. government revenue.E) A) and B)
F) C) and D)

Question 5

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

Question 6

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

Accepted Answer

The answer of The nominal interest rate is eight percent...

Question 7

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases, there i...

Question 8

The nominal interest rate is 3.5 percent and the inflation rate is 1.5 percent. What is the real interest rate?

Accepted Answer

A)  5.25 percent
B)  5 percent
C)  2.3 percent
D)  2 percentE) None of the above
F) C) and D)

Question 9

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage.
B)  real output.
C)  real interest rates.
D)  the real wage.E) B) and C)
F) C) and D)

Question 10

When the Consumer Price Index falls from 110 to 100

Accepted Answer

A)  there is inflation of 9.1% and the value of money decreases.
B)  there is deflation of 9.1% and the value of money increases.
C)  there is deflation of 10% and the value of money increases.
D)  there is inflation of 10% and the value of money decreases.E) A) and D)
F) A) and C)

Question 11

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  the price level
B)  nominal wages
C)  nominal GDP
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 13

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

Accepted Answer

A)  more than doubles.
B)  changes but less than doubles.
C)  doubles.
D)  does not changeE) All of the above
F) None of the above

Question 14

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 15

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A)  mean that only real interest earnings are taxed.
B)  mean an end to taxing capital gains.
C)  mean an increase in average tax rates.
D)  All of the above are correct.E) A) and D)
F) B) and D)

Question 16

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 17

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)  Austria in the 1920's.
B)  Hungary in the 1920's.
C)  Poland in the 1920's.
D)  All of the above are correct.E) B) and D)
F) None of the above

Question 18

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements about U.S. inflation is not correct?

Accepted Answer

A)  Low inflation was viewed as a triumph of President Carter's economic policy.
B)  There were long periods in the nineteenth century during which prices fell.
C)  The U.S. public has viewed inflation rates of even 7 percent as a major economic problem.
D)  The U.S. inflation rate has varied over time, but international data show even more variation.E) B) and C)
F) A) and D)

Question 20

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...

Exam 30: Money Growth and Inflation

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

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

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The nominal interest rate is 3.5 percent and the inflation rate is 1.5 percent. What is the real interest rate?

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Which of the following can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

The inflation tax falls mostly heavily on

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Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before-tax real capital gain?

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

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Correct AnswerverifiedWhen the money supply increases, there i...View AnswerShow Answer

Which of the following statements about U.S. inflation is not correct?

Correct AnswerverifiedShow Answer

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Correct AnswerverifiedShow Answer

The source of all four classic hyperinflations was high rates of money growth.

Correct AnswerverifiedShow Answer

In United States history there were long periods when most prices fell.

Correct AnswerverifiedShow Answer

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

Correct AnswerverifiedShow Answer

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

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

When the Consumer Price Index falls from 110 to 100

Correct AnswerverifiedShow Answer

Indexing the tax system to take into account the effects of inflation would by itself

Correct AnswerverifiedShow Answer

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Inflation has raised the general price l...
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When the money supply increases, there i...
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