Question 1

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 2

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate?

Accepted Answer

A)  11.5 percent
B)  7.5 percent
C)  4.5 percent
D)  2.5 percentE) None of the above
F) C) and D)

Question 3

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

Question 4

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

Question 5

Open-market purchases by the Fed make the money supply

Accepted Answer

A)  increase, which makes the value of money increase.
B)  increase, which makes the value of money decrease.
C)  decrease, which makes the value of money decrease.
D)  decrease, which makes the value of money increase.E) B) and D)
F) B) and C)

Question 6

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Accepted Answer

A)  decrease that benefited creditors at the expense of debtors.
B)  decrease that benefited debtors at the expense of creditors.
C)  increase that benefited creditors at the expense of debtors.
D)  increase that benefited debtors at the expense of creditors.E) All of the above
F) B) and D)

Question 7

Which of the following is not correct?

Accepted Answer

A)  The inflation rate is measured as the percentage change in a price index.
B)  For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent.
C)  During the 19th century there were long periods of falling prices in the U.S.
D)  Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.E) None of the above
F) All of the above

Question 8

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 9

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A)  9 percent inflation in the United States
B)  -1 percent inflation in Russia
C)  25 percent inflation in Venezuela
D)  2 percent inflation in JapanE) B) and C)
F) All of the above

Question 10

When the money market is drawn with the value of money on the vertical axis, as the price level increases, 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) A) and D)
F) C) and D)

Question 11

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Accepted Answer

A)  M = 500, V = 4
B)  M = 1500, V = 3
C)  M = 2000, V = 2
D)  M = 500, V = 1E) None of the above
F) B) and D)

Question 12

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

Accepted Answer

A)  $4,000.
B)  $2,250.
C)  $250.
D)  $36,000.E) None of the above
F) B) and D)

Question 13

Other things the same, an increase in velocity means that

Accepted Answer

A)  transactions per dollar increase so the price level rises.
B)  transactions per dollar increase so the price level falls.
C)  transactions per dollar decrease so the price level rises.
D)  transactions per dollar decrease so the price level falls.E) A) and C)
F) A) and B)

Question 14

Which of the following is not implied by the quantity equation?

Accepted Answer

A)  If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output.
B)  If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level.
C)  With constant money supply and output, an increase in velocity creates an increase in the price level.
D)  With constant money supply and velocity, an increase in output creates a proportional increase in the price level.E) None of the above
F) A) and B)

Question 15

Interest rates adjusted for the effects of inflation

Accepted Answer

A)  and inflation are nominal variables.
B)  and inflation are real variables.
C)  are real variables; inflation is a nominal variable.
D)  are nominal variables; inflation is a real variable.E) A) and C)
F) A) and D)

Question 16

You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  3 percent
B)  3.75 percent
C)  5 percent
D)  6 percentE) A) and B)
F) A) and C)

Question 17

The quantity theory of money

Accepted Answer

A)  is a fairly recent addition to economic theory.
B)  can explain both moderate inflation and hyperinflation.
C)  argues that inflation is caused by too little money in the economy.
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 18

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

Question 19

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 17-3. 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) C) and D)

Question 20

When inflation rises, people will desire to hold

Accepted Answer

A)  less money and will go to the bank less frequently.
B)  less money and will go to the bank more frequently.
C)  more money and will go to the bank less frequently.
D)  more money and will go to the bank more frequently.E) B) and D)
F) None of the above

Exam 17: Money Growth and Inflation

Which of the following is not correct?

Correct AnswerverifiedShow 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

Which country is correctly matched with its 2009 inflation rate?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate?

Correct AnswerverifiedShow Answer

The classical theory of inflation

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You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Correct AnswerverifiedShow Answer

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

Correct AnswerverifiedShow Answer

Which of the following is not implied by the quantity equation?

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. What quantity is measured along the vertical axis?

Correct AnswerverifiedShow Answer

The quantity theory of money

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Other things the same, an increase in velocity means that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

Correct AnswerverifiedShow Answer

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

When inflation rises, people will desire to hold

Correct AnswerverifiedShow Answer

Open-market purchases by the Fed make the money supply

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Inflation and nominal interest...
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