Question 1

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 2

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A)   28.00 percent
B)   36.25 percent
C)   43.75 percent
D)   67.50 percentE) C) and D)
F) All of the above

Question 3

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

Question 4

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 5

When inflation rises, people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.E) B) and D)
F) A) and B)

Question 6

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 1 to MD2? A)  an increase in the value of money B)  a decrease in the price level C)  an open-market purchase of bonds by the Federal Reserve D)  None of the above is correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 7

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real variables. Most economists think this is a good description of the economy in the short run and in the long run.
B)   does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
C)   does not change nominal variables. Most economists think this is a good description of the economy in the short-run and the long run.
D)   does not change nominal variables. Most economists think this is a good description of the economy in the long run but not the short run.E) B) and C)
F) A) and D)

Question 8

When inflation causes relative-price variability,

Accepted Answer

A)   consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
B)   consumer decisions are distorted, but markets are still able to efficiently allocate factors of production.
C)   consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired.
D)   consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.E) All of the above
F) A) and C)

Question 9

When money is neutral, which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price levelE) A) and C)
F) A) and D)

Question 10

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)   nominal interest rates.
B)   real interest rates.
C)   the price level.
D)   the money supply.E) B) and D)
F) All of the above

Question 11

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

Accepted Answer

A)   $0.90.
B)   $1.00.
C)   $1.11.
D)   $1.33.E) B) and C)
F) A) and C)

Question 12

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) B) and D)
F) None of the above

Question 13

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

Question 14

The price level falls 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 B)
F) None of the above

Question 15

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 
-Refer to Figure 12-3. What quantity is measured along the vertical axis?

Accepted Answer

A)   the price level
B)   the velocity of money
C)   the value of money
D)   the quantity of moneyE) B) and C)
F) A) and B)

Question 16

The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?

Accepted Answer

A)   3 percent.
B)   4 percent.
C)   8 percent.
D)   12 percent.E) B) and C)
F) A) and D)

Question 17

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Accepted Answer

A)   both the upward trend in real GDP and the upward trend in the price level
B)   the upward trend in real GDP but not the upward trend in the price level
C)   the upward trend in the price level but not the upward trend in real GDP
D)   neither the upward trend in the price level nor the upward trend in real GDPE) A) and B)
F) A) and C)

Question 18

In the U.S., taxes on capital gains are computed using

Accepted Answer

A)   nominal gains. This is one way by which higher inflation discourages saving.
B)   nominal gains. This is one way by which higher inflation encourages saving.
C)   real gains. This is one way by which higher inflation discourages saving.
D)   real gains. This is one way by which higher inflation encourages saving.E) All of the above
F) None of the above

Question 19

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 20

The inflation tax refers to

Accepted Answer

A)   the revenue a government creates by printing money.
B)   higher inflation which requires more frequent price changes.
C)   the idea that, other things the same, an increase in the tax rate raises the inflation rate.
D)   taxes being indexed for inflation.E) A) and D)
F) A) and B)

Exam 12: Money Growth and Inflation

When inflation causes relative-price variability,

Correct Answer
verified

Which of the following is an example of menu costs?

Correct Answer
verified

Hyperinflations are associated with governments printing money to finance expenditures.

Correct Answer
verified

The inflation tax refers to

Correct Answer
verified

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Correct Answer
verified

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

Correct Answer
verified

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct Answer
verified

When money is neutral, which of the following increases when the money supply growth rate increases?

Correct Answer
verified

When inflation rises, people

Correct Answer
verified

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Correct Answer
verified

Correct Answer
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The price level falls if either

Correct Answer
verified

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Correct Answer
verified

If velocity and output were nearly constant, then

Correct Answer
verified

In the U.S., taxes on capital gains are computed using

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Correct Answer
verified

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
verified

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-3. What quantity is measured along the vertical axis?

Correct Answer
verified

Monetary neutrality means that a change in the money supply

Correct Answer
verified

The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?

Correct Answer
verified

Exam 12: Money Growth and Inflation

When inflation causes relative-price variability,

Correct AnswerverifiedShow Answer

Which of the following is an example of menu costs?

Correct AnswerverifiedShow Answer

Hyperinflations are associated with governments printing money to finance expenditures.

Correct AnswerverifiedShow Answer

The inflation tax refers to

Correct AnswerverifiedShow Answer

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Correct AnswerverifiedShow Answer

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

Correct AnswerverifiedShow Answer

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct AnswerverifiedShow Answer

When money is neutral, which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

When inflation rises, people

Correct AnswerverifiedShow Answer

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The price level falls if either

Correct AnswerverifiedShow Answer

Over time both real GDP and the price level have trended upward. Which of these trends would the classical dichotomy say could be explained by an upward trend in the money supply?

Correct AnswerverifiedShow Answer

If velocity and output were nearly constant, then

Correct AnswerverifiedShow Answer

In the U.S., taxes on capital gains are computed using

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Correct AnswerverifiedShow Answer

Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct AnswerverifiedShow Answer

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-3. What quantity is measured along the vertical axis?

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

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Figure 12-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 12-2. Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

Correct Answer
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