Question 1

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old value.E) A) and D)
F) A) and C)

Question 2

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)   $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars.
B)   $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars.
C)   20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)   20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) A) and C)
F) A) and B)

Question 3

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

Question 4

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

Question 5

As the price level falls, the value of money falls.

Accepted Answer

A) True 
 B)False

Question 6

The inflation tax refers to

Accepted Answer

A)   the revenue a government creates by printing money.
B)   higher inflation which requires more frequent price changes.
C)   the idea that, other things the same, an increase in the tax rate raises the inflation rate.
D)   taxes being indexed for inflation.E) B) and C)
F) None of the above

Question 7

Which of the following is correct?

Accepted Answer

A)   The Continental Congress used the inflation tax to help finance the American Revolution.
B)   The inflation is today a principal source of revenue for the U.S. government.
C)   There is no way a person can avoid the inflation tax.
D)   Governments can only raise revenues through taxation.E) A) and D)
F) B) and C)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)   is easier to impose.
B)   reduces inflation.
C)   falls mainly on high-income individuals.
D)   reduces the real cost of government expenditure.E) C) and D)
F) A) and B)

Question 10

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)   both the classical dichotomy and the quantity theory of money.
B)   the classical dichotomy, but not the quantity theory of money.
C)   the quantity theory of money, but not the classical dichotomy.
D)   neither the classical dichotomy nor the quantity theory of money.E) None of the above
F) B) and D)

Question 11

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)   either a rise in output or a rise in velocity.
B)   either a rise in output or a fall in velocity.
C)   either a fall in output or a rise in velocity.
D)   either a fall in output or a fall in velocity.E) B) and D)
F) None of the above

Question 12

Banks advertise

Accepted Answer

A)   the real interest rate, which is how fast the dollar value of savings grows.
B)   the real interest rate, which is how fast the purchasing power of savings grows.
C)   the nominal interest rate, which is how fast the dollar value of savings grows.
D)   the nominal interest rate, which is how fast the purchasing power of savings grows.E) All of the above
F) A) and C)

Question 13

In the 1970s, the U.S. inflation rate reached about

Accepted Answer

A)   7 percent per year.
B)   10 percent per year.
C)   14 percent per year.
D)   20 percent per year.E) A) and D)
F) A) and C)

Question 14

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. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

Accepted Answer

A)   0.5 and the equilibrium value of money is 2.
B)   2 and the equilibrium value of money is 0.5.
C)   0.5 and the equilibrium value of money cannot be determined from the graph.
D)   2 and the equilibrium value of money cannot be determined from the graph.E) A) and B)
F) All of the above

Question 15

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 D)
F) A) and B)

Question 16

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Accepted Answer

A)   both interest income and capital gains.
B)   interest income but not capital gains.
C)   capital gains but not interest income.
D)   neither interest income nor capital gains.E) B) and D)
F) B) and C)

Question 17

When inflation rises, people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.E) C) and D)
F) A) and D)

Question 18

If the price level increased from 120 to 130, then what was the inflation rate?

Accepted Answer

A)   1.1 percent.
B)   7.7 percent.
C)   10.0 percent.
D)   8.3 percent.E) A) and B)
F) A) and C)

Question 19

When we assume that the supply of money is a variable that the central bank controls, we

Accepted Answer

A)   must then assume as well that the demand for money is not influenced by the value of money.
B)   must then assume as well that the price level is unrelated to the value of money.
C)   are ignoring the fact that, in the real world, households are also suppliers of money.
D)   are ignoring the complications introduced by the role of the banking system.E) All of the above
F) A) and B)

Question 20

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Accepted Answer

The answer of The idea that firms incur actual costs...

Exam 12: Money Growth and Inflation

As the price level decreases, the value of money

Correct AnswerverifiedShow Answer

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. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

Correct AnswerverifiedShow Answer

When we assume that the supply of money is a variable that the central bank controls, we

Correct AnswerverifiedShow Answer

The inflation tax refers to

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

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Correct AnswerverifiedShow Answer

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

Governments may prefer an inflation tax to some other type of tax because the inflation tax

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

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of

Correct AnswerverifiedShow Answer

In the 1970s, the U.S. inflation rate reached about

Correct AnswerverifiedShow Answer

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Correct AnswerverifiedShow Answer

As the price level falls, the value of money falls.

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity doubled, and real GDP doubled. According to the quantity equation the price level is now

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Correct AnswerverifiedShow Answer

If the price level increased from 120 to 130, then what was the inflation rate?

Correct AnswerverifiedShow Answer

Banks advertise

Correct AnswerverifiedShow Answer

When inflation rises, people

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The idea that firms incur actual costs when they change prices is known as _. Firms in countries with lower inflation rates will change price _ frequently compared to those countries where inflation is higher.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified