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Exam 17: Money Growth and Inflation

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Question 91

Multiple Choice

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Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

A) The nominal interest rate was 10 percent and the inflation rate was 6 percent.
B) The nominal interest rate was 6 percent and the inflation rate was 2 percent.
C) The nominal interest rate was 4 percent and the inflation rate was 2 percent.
D) The nominal interest rate was 10 percent and the inflation rate was 4 percent.

E) B) and C)
F) A) and B)

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Question 92

Multiple Choice

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In the U.S., people are required to pay taxes on

A) nominal interest earnings, irrespective of their real interest earnings.
B) real interest earnings, irrespective of their nominal interest earnings.
C) real capital gains, irrespective of their nominal capital gains.
D) All of the above are correct.

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

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Question 93

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Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. At the end of 2009 the relevant money-supply curve was the one labeled MS₁. At the end of 2010 the relevant money-supply curve was the one labeled MS₂. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

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?

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

A decrease in the overall price level or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

If the value of a dollar falls, then the quantity of money demanded

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

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

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

According to the classical dichotomy, what changes nominal variables? What changes real variables?

If the price level increased from 200 to 250, then what was the inflation rate?

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 .

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

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

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?