Question 1

According to the classical dichotomy, when the money supply doubles, which of the following also double(s) ?

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

Question 2

Which of the following best characterizes the effect of inflation?

Accepted Answer

A)  It impedes financial markets in their role of allocating resources.
B)  It reduces the purchasing power of the average consumer.
C)  Generally, it increases after-tax real interest rates.
D)  It is most costly when anticipated.E) A) and D)
F) None of the above

Question 3

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 4

Casimir purchased one share of Norcet stock for $200 in year 1 and sold that share in year 2 for $400. The inflation rate between year 1 and year 2 was 50 percent. If the capital gains tax is imposed at a rate of 50 percent, what is Casimir's after-tax real capital gain?

Accepted Answer

A)  $0
B)  $50
C)  $100
D)  $200E) C) and D)
F) B) and C)

Question 5

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A)  real GDP
B)  unemployment
C)  nominal interest rates
D)  the real wage rateE) A) and B)
F) C) and D)

Question 6

When the money market is represented in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

Accepted Answer

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

Question 7

Which of the following ideas does the classical dichotomy refers to?

Accepted Answer

A)  The supply of money is irrelevant for understanding the determinants of nominal and real variables.
B)  The supply of money determines nominal variables, but not real variables.
C)  The supply of money determines real variables, but not nominal variables.
D)  The supply of money is a determinant of both real and nominal variables.E) B) and D)
F) A) and D)

Question 8

If the Bank of Canada were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 7 percent, and money growth is 2 percent. Which of the following is consistent with these facts?

Accepted Answer

A)  The real interest rate is 2 percent, and nominal wages are rising.
B)  The real interest rate is 2 percent, and real wages are rising.
C)  The real interest rate is 5 percent, and nominal wages are rising.
D)  The real interest rate is 9 percent, and real wages are rising.E) A) and D)
F) All of the above

Question 10

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the price level decrease?

Accepted Answer

A)  if either money demand or money supply shifts right
B)  if either money demand or money supply shifts left
C)  if money demand shifts right or money supply shifts left
D)  if money demand shifts left or money supply shifts rightE) A) and B)
F) All of the above

Question 11

Explain the adjustment process that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases, there i...

Question 12

Over the past 70 years, what was the approximate average annual inflation rate?

Accepted Answer

A)  3 percent, implying that prices have increased 12-fold
B)  4 percent, implying that prices have increased 16-fold
C)  3 percent, implying that prices have increased 18-fold
D)  5 percent, implying that prices increased about 18-foldE) B) and C)
F) None of the above

Question 13

In recent years Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in...

Question 14

According to Hume, the classical dichotomy is useful for analyzing the economy because nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Accepted Answer

A) True 
 B)False

Question 15

If your salary increased by 7 percent and prices increased by 4 percent, by how much did your real wage rise?

Accepted Answer

A)  3 percent
B)  4 percent
C)  6 percent
D)  7 percentE) A) and B)
F) All of the above

Question 16

Greta puts money in a savings account at her bank earning 6.5 percent. One year later she takes her money out and notes that while her money was earning interest, prices rose 3.5 percent. Which of the following does Greta now have?

Accepted Answer

A)  3.5 percent more money with which she can purchase 6.5 percent more goods
B)  6.5 percent more money with which she can purchase 3 percent more goods
C)  6.5 percent more money with which she can purchase 6.5 percent more goods
D)  10 percent more money with which she can purchase 3 percent more goodsE) C) and D)
F) A) and B)

Question 17

The country of Aquilonia has a tax system identical to that of Canada. Suppose someone in Aquilonia bought a parcel of land for $10 000 in 1960 when the price index equalled 100. In 2002, the person sold the land for $100 000, and the price index equalled 500. If the person must pay 20 percent of any capital gain in taxes, which of the following is the after-tax real capital gain (in 2002 dollars)  on the land?

Accepted Answer

A)  $72 000
B)  $62 000
C)  $32 000
D)  $6400E) C) and D)
F) A) and B)

Question 18

Given a nominal interest rate of 12 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 5 percent, and the tax rate is 20 percent.
B)  Inflation is 4 percent, and the tax rate is 30 percent.
C)  Inflation is 3 percent, and the tax rate is 40 percent.
D)  Inflation is 2 percent, and the tax rate is 50 percent.E) A) and B)
F) A) and C)

Question 19

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 20

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 8 percent and inflation is 3 percent, what is the money supply growth rate or the real interest rate?

Accepted Answer

A)  The money supply growth rate is 3 percent.
B)  The real interest rate is 11 percent.
C)  The real interest rate is 8 percent.
D)  The money supply growth rate is 11 percent.E) A) and D)
F) C) and D)

Exam 11: Money Growth and Inflation

When the money market is represented in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

Correct Answer
verified

If your salary increased by 7 percent and prices increased by 4 percent, by how much did your real wage rise?

Correct Answer
verified

Correct Answer
verified

Which of the following best characterizes the effect of inflation?

Correct Answer
verified

If the Bank of Canada were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct Answer
verified

According to the classical dichotomy, when the money supply doubles, which of the following also double(s) ?

Correct Answer
verified

Greta puts money in a savings account at her bank earning 6.5 percent. One year later she takes her money out and notes that while her money was earning interest, prices rose 3.5 percent. Which of the following does Greta now have?

Correct Answer
verified

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 7 percent, and money growth is 2 percent. Which of the following is consistent with these facts?

Correct Answer
verified

According to the classical dichotomy, which of the following is influenced by monetary factors?

Correct Answer
verified

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the price level decrease?

Correct Answer
verified

List and define any two of the costs of high inflation.

Correct Answer
verified
The costs include:
Shoeleather costs: th...
View Answer

In recent years Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Correct Answer
verified
The Fisher effect says that increases in...
View Answer

Explain the adjustment process that creates a change in the price level when the money supply increases.

Correct Answer
verified
When the money supply increases, there i...
View Answer

Over the past 70 years, what was the approximate average annual inflation rate?

Correct Answer
verified

Casimir purchased one share of Norcet stock for $200 in year 1 and sold that share in year 2 for $400. The inflation rate between year 1 and year 2 was 50 percent. If the capital gains tax is imposed at a rate of 50 percent, what is Casimir's after-tax real capital gain?

Correct Answer
verified

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 8 percent and inflation is 3 percent, what is the money supply growth rate or the real interest rate?

Correct Answer
verified

According to Hume, the classical dichotomy is useful for analyzing the economy because nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct Answer
verified

Nominal GDP measures output of final goods and services in physical terms.

Correct Answer
verified

Given a nominal interest rate of 12 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

Which of the following ideas does the classical dichotomy refers to?

Correct Answer
verified

Exam 11: Money Growth and Inflation

When the money market is represented in a diagram with the value of money on the vertical axis, which of the following best describes the effects of an increase in money supply?

Correct AnswerverifiedShow Answer

If your salary increased by 7 percent and prices increased by 4 percent, by how much did your real wage rise?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following best characterizes the effect of inflation?

Correct AnswerverifiedShow Answer

If the Bank of Canada were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct AnswerverifiedShow Answer

According to the classical dichotomy, when the money supply doubles, which of the following also double(s) ?

Correct AnswerverifiedShow Answer

Greta puts money in a savings account at her bank earning 6.5 percent. One year later she takes her money out and notes that while her money was earning interest, prices rose 3.5 percent. Which of the following does Greta now have?

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 7 percent, and money growth is 2 percent. Which of the following is consistent with these facts?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is influenced by monetary factors?

Correct AnswerverifiedShow Answer

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the price level decrease?

Correct AnswerverifiedShow Answer

List and define any two of the costs of high inflation.

Correct AnswerverifiedThe costs include:Shoeleather costs: th...View AnswerShow Answer

In recent years Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

Explain the adjustment process that creates a change in the price level when the money supply increases.

Correct AnswerverifiedWhen the money supply increases, there i...View AnswerShow Answer

Over the past 70 years, what was the approximate average annual inflation rate?

Correct AnswerverifiedShow Answer

Casimir purchased one share of Norcet stock for $200 in year 1 and sold that share in year 2 for $400. The inflation rate between year 1 and year 2 was 50 percent. If the capital gains tax is imposed at a rate of 50 percent, what is Casimir's after-tax real capital gain?

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 8 percent and inflation is 3 percent, what is the money supply growth rate or the real interest rate?

Correct AnswerverifiedShow Answer

According to Hume, the classical dichotomy is useful for analyzing the economy because nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct AnswerverifiedShow Answer

Nominal GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 12 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Which of the following ideas does the classical dichotomy refers to?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The costs include:
Shoeleather costs: th...
View Answer

Correct Answer
verified
The Fisher effect says that increases in...
View Answer

Correct Answer
verified
When the money supply increases, there i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified