Question 1

In which case below does a person's purchasing power from saving increase the most?

Accepted Answer

A)   the nominal interest rate = 10% and inflation = 8%
B)   the nominal interest rate = 9% and inflation = 6%
C)   the nominal interest rate = 8% and inflation = 4%
D)   the nominal interest rate = 7% and inflation = 2%E) C) and D)
F) B) and D)

Question 2

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)   Friedman Effect.
B)   Hume Effect.
C)   Fisher Effect.
D)   the inflation tax.E) A) and C)
F) None of the above

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Accepted Answer

A)   movement to the right along the money demand curve.
B)   movement to the left along the money demand curve.
C)   shift to the right of the money supply curve.
D)   shift to the left of the money supply curve.E) A) and D)
F) None of the above

Question 5

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

Question 6

According to the classical dichotomy, which of the following increases when the money supply increases?

Accepted Answer

A)   the real interest rate
B)   real GDP
C)   the real wage
D)   the nominal wage.E) A) and C)
F) C) and D)

Question 7

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

Accepted Answer

A)   1.6 percent
B)   10 percent
C)   6.5 percent
D)   1.5 percentE) B) and D)
F) All of the above

Question 8

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) C) and D)
F) A) and B)

Question 9

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real GDP. 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 GDP. Most economists think this is a good description of the economy in the long run but not the short run.
C)   does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run.
D)   does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.E) A) and B)
F) C) and D)

Question 10

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha...

Question 11

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)   the quantity theory and evidence from four hyperinflations during the 1920's
B)   the quantity theory but not evidence from four hyperinflations during the 1920's
C)   evidence from four hyperinflations during the 1920's but not the quantity theory
D)   neither the quantity theory nor evidence from four hyperinflation during the 1920'sE) A) and B)
F) None of the above

Question 12

If monetary neutrality holds, then an increase in the money supply

Accepted Answer

A)   increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run.
B)   increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run.
C)   increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run.
D)   increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.E) A) and D)
F) A) and C)

Question 13

Between 1880 and 1886, prices that were

Accepted Answer

A)   lower than expected transferred wealth from creditors to debtors.
B)   lower than expected transferred wealth from debtors to creditors.
C)   higher than expected transferred wealth from creditors to debtors.
D)   higher than expected transferred wealth from debtors to creditors.E) A) and B)
F) B) and C)

Question 14

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

When there is inflation, the number of dollars needed to buy a representative basket of goods

Accepted Answer

A)   increases, and so the value of money rises.
B)   increases, and so the value of money falls.
C)   decreases, and so the value of money rises.
D)   decreases, and so the value of money fallsE) All of the above
F) A) and B)

Question 17

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 18

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

Accepted Answer

A)   money demand shifts right and decreases if money supply shifts right.
B)   money demand shifts right and decreases if money supply shifts left.
C)   money demand shifts left and decreases if money supply shifts right.
D)   money demand shifts left and decreases if money supply shifts left.E) B) and C)
F) A) and B)

Question 19

If V and M are constant and Y doubles, the quantity equation implies that the price level

Accepted Answer

A)   falls to half its original level.
B)   does not change.
C)   doubles.
D)   more than doubles.E) None of the above
F) C) and D)

Question 20

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

According to the classical dichotomy, which of the following increases when the money supply increases?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Correct AnswerverifiedShow Answer

In United States history there were long periods when most prices fell.

Correct AnswerverifiedShow Answer

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

Correct AnswerverifiedShow Answer

In which case below does a person's purchasing power from saving increase the most?

Correct AnswerverifiedShow Answer

Between 1880 and 1886, prices that were

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If V and M are constant and Y doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Correct AnswerverifiedThe inflation tax refers to the fact tha...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

When there is inflation, the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings. Income ta...View AnswerShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

If monetary neutrality holds, then an increase in the money supply

Correct AnswerverifiedShow Answer

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

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The inflation tax refers to the fact tha...
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Inflation discourages savings. Income ta...
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