Question 1

In the U.S., from the early 1980s through the early 1990s,

Accepted Answer

A)   both inflation and nominal interest rates rose.
B)   both inflation and nominal interest rates fell.
C)   the inflation rate fell and the nominal interest rate rose.
D)   the inflation rate rose and the nominal interest rate fell.E) A) and B)
F) B) and D)

Question 2

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

Accepted Answer

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

Question 3

Which of the following statements about inflation is correct?

Accepted Answer

A)   Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity.
B)   People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality.
C)   Nominal incomes are determined by nominal factors; they are not affected by real factors.
D)   Inflation does not in itself reduce people's real purchasing power.E) A) and D)
F) All of the above

Question 4

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) None of the above
F) A) and C)

Question 5

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 4 percent; the tax rate is 5 percent.
B)   Inflation is 3 percent; the tax rate is 20 percent.
C)   Inflation is 2 percent; the tax rate is 30 percent.
D)   The after-tax real interest rate is the same for all of the above.E) A) and D)
F) A) and C)

Question 6

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A)   Increases in the price level can be created by increases in money demand.
B)   Nominal incomes tend to rise at the same time that the price level is rising.
C)   As the price level rises, the value of a dollar falls.
D)   Inflation only changes nominal variables.E) B) and C)
F) C) and D)

Question 7

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)   excess demand for money, so the price level will rise.
B)   excess demand for money, so the price level will fall.
C)   excess supply of money, so the price level will rise.
D)   excess supply of money, so the price level will fall.E) None of the above
F) All of the above

Question 8

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Accepted Answer

A)   The $80 is a real variable. The quantity of shoes is a nominal variable.
B)   The $80 is a nominal variable. The quantity of shoes is a real variable.
C)   Both the $80 and the quantity of shoes are nominal variables.
D)   Both the $80 and the quantity of shoes are real variables.E) A) and B)
F) A) and C)

Question 9

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

Question 10

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Accepted Answer

A)   real output only.
B)   nominal output only.
C)   the price level only.
D)   both the price level and nominal output.E) A) and C)
F) B) and C)

Question 11

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)   inflation and nominal interest rates, but does not change real interest rates.
B)   inflation, nominal interest rates, and real interest rates.
C)   inflation and real interest rates, but does not change nominal interest rates.
D)   nominal interest rates and real interest rates, but does not change inflation.E) A) and B)
F) A) and C)

Question 12

Figure 30-1 
-Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the demand for goods and services decreases.
B)   the economy's ability to produce goods and services increases.
C)   the equilibrium price level decreases.
D)   None of the above is correct.E) A) and D)
F) C) and D)

Question 13

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

Question 14

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

Accepted Answer

A)   1.
B)   1.5.
C)   2.
D)   4.5.E) All of the above
F) A) and B)

Question 15

Other things the same, an increase in velocity means that

Accepted Answer

A)   the rate at which money changes hands falls, so the price level rises.
B)   the rate at which money changes hands falls, so the price level falls.
C)   the rate at which money changes hands rises, so the price level rises.
D)   the rate at which money changes hands rises, so the price level falls.E) A) and B)
F) B) and C)

Question 16

Figure 30-1 
-Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the equilibrium value of money decreases.
B)   the equilibrium price level decreases.
C)   the supply of money has decreased.
D)   the demand for goods and services will decrease.E) A) and B)
F) None of the above

Question 17

As the price level decreases, the value of money

Accepted Answer

A)   increases, so people must hold less money to purchase goods and services.
B)   increases, so people must hold more money to purchase goods and services.
C)   decreases, so people must hold more money to purchase goods and services.
D)   decreases, so people must hold less money to purchase goods and services.E) C) and D)
F) A) and B)

Question 18

Dollar prices and relative prices are both nominal variables.

Accepted Answer

A) True 
 B)False

Question 19

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Accepted Answer

The answer of In the U.S., taxes are paid on...

Question 20

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

Accepted Answer

nominal va...

Exam 30: Money Growth and Inflation

Which of the following helps to explain why the inflation fallacy is a fallacy?

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The classical theory of inflation

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In the U.S., from the early 1980s through the early 1990s,

Correct AnswerverifiedShow Answer

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Correct AnswerverifiedShow Answer

Other things the same, an increase in velocity means that

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the lowest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Which of the following statements about inflation is correct?

Correct AnswerverifiedShow Answer

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

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

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Correct AnswerverifiedShow Answer

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Correct AnswerverifiedShow Answer

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

Correct AnswerverifiedShow Answer

Dollar prices and relative prices are both nominal variables.

Correct AnswerverifiedShow Answer

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Correct AnswerverifiedShow Answer

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

Correct Answerverifiednominal va...View AnswerShow Answer

If velocity and output were nearly constant, then

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct AnswerverifiedShow Answer

As the price level decreases, the value of money

Correct AnswerverifiedShow Answer

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Correct AnswerverifiedShow Answer

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Correct AnswerverifiedShow Answer

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In the U.S., taxes are paid on one's _ gains/returns. Therefore, a _ inflation rate encourages more saving.

Correct Answer
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Correct Answer
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nominal va...
View Answer

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