Question 1

Inflation can be measured by the

Accepted Answer

A)   change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years.
B)   change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.
C)   percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years.
D)   percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years.E) None of the above
F) B) and C)

Question 2

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Accepted Answer

A)   both higher inflation and higher nominal interest rates.
B)   a higher inflation rate, but not higher nominal interest rates.
C)   a higher nominal interest rate, but not higher inflation.
D)   neither a higher inflation rate nor a higher nominal interest rate.E) B) and D)
F) C) and D)

Question 4

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Accepted Answer

Higher inflation gives people ...

Question 5

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Accepted Answer

fallen, mo...

Question 6

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Accepted Answer

increases, a movemen...

Question 7

If inflation is less than expected, who is wealth redistributed to?

Accepted Answer

The answer of If inflation is less than expected, who...

Question 8

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Accepted Answer

A)   The $750 is a nominal variable. The 300 cups of coffee is a real variable.
B)   The $750 is a real variable. The 300 cups of coffee is a nominal variable.
C)   Both the $750 and the 300 cups of coffee are nominal variables.
D)   Both the $750 and the 300 cups of coffee are real variables.E) A) and C)
F) C) and D)

Question 9

Higher inflation makes relative prices

Accepted Answer

A)   more variable, making it more likely that resources will be allocated to their best use.
B)   more variable, making it less likely that resources will be allocated to their best use.
C)   less variable, making it more likely that resources will be allocated to their best use.
D)   less variable, making it less likely that resources will be allocated to their best use.E) B) and C)
F) A) and D)

Question 10

For a given real interest rate, a decrease in the inflation rate would

Accepted Answer

A)   decrease the after-tax real interest rate and so decrease saving.
B)   decrease the after-tax real interest rate and so increase saving.
C)   increase the after-tax real interest rate and so decrease saving.
D)   increase the after-tax real interest rate and so increase saving.E) A) and D)
F) B) and C)

Question 11

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

Accepted Answer

A)   2.4 percent.
B)   3.5 percent.
C)   8.5 percent.
D)   15 percent.E) A) and B)
F) A) and C)

Question 12

The inflation tax

Accepted Answer

A)   transfers wealth from the government to households.
B)   is the increase in real income taxes due to lack of indexation in income tax rules.
C)   is a tax on everyone who holds money.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 13

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

Question 14

The price level is determined by the supply of, and demand for, money.

Accepted Answer

A) True 
 B)False

Question 15

You observe people going to the bank more frequently. Other things the same this could result from

Accepted Answer

A)   an increase in inflation which increases money demand.
B)   an increase in inflation which reduces money demand.
C)   a decrease in inflation which increases money demand.
D)   a decrease in inflation which reduces money demand.E) A) and B)
F) A) and C)

Question 16

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Accepted Answer

A)   higher than she had expected, and the real value of the loan is higher than she had expected.
B)   higher than she had expected, and the real value of the loan is lower than she had expected.
C)   lower than she had expected, and the real value of the loan is higher than she had expected.
D)   lower then she had expected, and the real value of the loan is lower than she had expected.E) A) and D)
F) B) and C)

Question 17

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)   5.1 percent
B)   3.1 percent
C)   2.1 percent
D)   2.4 percentE) A) and B)
F) A) and C)

Question 18

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 19

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve

Accepted Answer

A)   shifts rightward, causing the value of money measured in terms of goods and services to rise.
B)   shifts rightward, causing the value of money measured in terms of goods and services to fall.
C)   shifts leftward, causing the value of money measured in terms of goods and services to rise.
D)   shifts leftward, causing the value of money measured in terms of goods and services to fall.E) None of the above
F) B) and C)

Question 20

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A)   increases the price level and increases the value of money.
B)   increases the price level and decreases the value of money.
C)   decreases the price level and increases the value of money.
D)   decreases the price level and decreases the value of money.E) A) and C)
F) A) and B)

Exam 12: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

Inflation can be measured by the

Correct AnswerverifiedShow Answer

The price level is determined by the supply of, and demand for, money.

Correct AnswerverifiedShow Answer

The inflation tax

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

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Correct AnswerverifiedShow Answer

You observe people going to the bank more frequently. Other things the same this could result from

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Correct Answerverifiedfallen, mo...View AnswerShow Answer

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems her bonds for $22,700 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct AnswerverifiedShow Answer

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Correct AnswerverifiedHigher inflation gives people ...View AnswerShow Answer

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Correct AnswerverifiedShow Answer

A decrease in the value of money __________ the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ____________.

Correct Answerverifiedincreases, a movemen...View AnswerShow Answer

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Correct AnswerverifiedShow Answer

The United States has never had deflation.

Correct AnswerverifiedShow Answer

For a given real interest rate, a decrease in the inflation rate would

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Correct AnswerverifiedShow Answer

If inflation is less than expected, who is wealth redistributed to?

Correct AnswerverifiedShow Answer

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When the consumer price index increases, the value of your money has _. According to the quantity theory of money this is caused by an increase in the _.

Correct Answer
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fallen, mo...
View Answer

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Correct Answer
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Higher inflation gives people ...
View Answer

Correct Answer
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A decrease in the value of money the quantity of money demanded. On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as __.

Correct Answer
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increases, a movemen...
View Answer

Correct Answer
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