Question 1

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Accepted Answer

hyperinfla...

Question 2

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

Question 3

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who save than for those who borrow.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
D)   for savers in low income tax brackets than for savers in high income tax brackets.E) B) and D)
F) B) and C)

Question 4

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Accepted Answer

debtors/bo...

Question 5

The classical theory of inflation

Accepted Answer

A)   is also known as the quantity theory of money.
B)   was developed by some of the earliest economic thinkers.
C)   is used by most modern economists to explain the long-run determinants of the inflation rate.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 6

Over the past 80 years, prices in the U.S. have risen on average about

Accepted Answer

A)   2 percent per year.
B)   4 percent per year.
C)   3.6 percent per year.
D)   6 percent per year.E) A) and D)
F) A) and B)

Question 7

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 interest.E) None of the above
F) All of the above

Question 8

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Accepted Answer

A)   135
B)   132
C)   125
D)   121E) B) and C)
F) A) and D)

Question 9

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 C)
F) C) and D)

Question 10

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

Accepted Answer

A)   the price level and nominal wages
B)   the price level, but not the nominal wage
C)   the nominal wage, but not the price level
D)   neither the nominal wage nor the price levelE) A) and B)
F) A) and C)

Question 11

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

Accepted Answer

A)   right, lowering the price level.
B)   right, raising the price level.
C)   left, raising the price level.
D)   left, lowering the price level.E) A) and C)
F) B) and C)

Question 12

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Accepted Answer

A) True 
 B)False

Question 13

The supply of money increases when

Accepted Answer

A)   the price level falls.
B)   the interest rate increases.
C)   the Fed makes open-market purchases.
D)   money demand increases.E) B) and C)
F) A) and D)

Question 14

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A)   nominal and real GDP would rise by 5 percent.
B)   nominal GDP would rise by 5 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would rise by 5 percent.
D)   neither nominal GDP nor real GDP would change.E) A) and D)
F) C) and D)

Question 15

Wealth is redistributed from debtors to creditors when inflation is

Accepted Answer

A)   high, whether it is expected or not.
B)   low, whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.E) B) and C)
F) All of the above

Question 16

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

Accepted Answer

A)   10 percent
B)   20 percent
C)   3 percent
D)   5 percentE) A) and C)
F) B) and C)

Question 17

The velocity of money is

Accepted Answer

A)   the rate at which the Fed puts money into the economy.
B)   the same thing as the long-term growth rate of the money supply.
C)   the money supply divided by nominal GDP.
D)   the average number of times per year a dollar is spent.E) A) and B)
F) A) and C)

Question 18

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. 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) B) and D)
F) A) and B)

Question 19

An increase in money demand would create a surplus of money at the original value of money.

Accepted Answer

A) True 
 B)False

Question 20

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded decreases.
D)   decreases, so the quantity of money demanded increases.E) B) and D)
F) None of the above

Exam 22: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

The velocity of money is

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If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

Correct AnswerverifiedShow Answer

Inflation induces people to spend more resources maintaining lower money holdings. The costs of doing this are called shoeleather costs.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Correct Answerverifiedhyperinfla...View AnswerShow Answer

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Correct AnswerverifiedShow Answer

The supply of money increases when

Correct AnswerverifiedShow Answer

An increase in money demand would create a surplus of money at the original value of money.

Correct AnswerverifiedShow Answer

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

Correct AnswerverifiedShow Answer

Over the past 80 years, prices in the U.S. have risen on average about

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

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Correct AnswerverifiedShow Answer

The classical theory of inflation

Correct AnswerverifiedShow Answer

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. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Wealth is redistributed from debtors to creditors when inflation is

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Correct Answerverifieddebtors/bo...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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hyperinfla...
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During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _ to _.

Correct Answer
verified
debtors/bo...
View Answer

Correct Answer
verified