Question 1

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Accepted Answer

A)  she really is worse off.
B)  her real income increased eight percent.
C)  menu costs have reduced her purchasing power.
D)  she is committing the inflation fallacy.E) A) and B)
F) B) and D)

Question 2

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Accepted Answer

A)  a real interest rate of 3 percent and an inflation rate of 2 percent.
B)  a real interest rate of 7 percent and an inflation rate of 1 percent.
C)  a real interest rate of 5 percent and an inflation rate of 1 percent.
D)  a real interest rate of 6 percent and an inflation rate of 1 percent.E) A) and B)
F) None of the above

Question 3

The consumer price index increases from 200 to 208. What is the inflation rate?

Accepted Answer

The answer of The consumer price index increases from 200...

Question 4

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Accepted Answer

A)  the value of money rises which will make people desire to hold more money.
B)  the value of money rises which will make people desire to hold less money.
C)  the value of money falls which will make people desire to hold more money.
D)  the value of money falls which will make people desire to hold less money.E) A) and B)
F) A) and C)

Question 5

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A)  28.00 percent
B)  36.25 percent
C)  43.75 percent
D)  67.50 percentE) A) and B)
F) C) and D)

Question 6

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 7

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 8

Over the last 80 years, the average annual U.S. inflation rate was about

Accepted Answer

A)  3.6 percent, implying that prices have increased 16-fold.
B)  4 percent, implying that prices have increased 17-fold.
C)  4 percent, implying that prices have increased 16-fold.
D)  3.6 percent, implying that prices increased about 17-fold.E) B) and C)
F) A) and D)

Question 9

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

Question 10

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)  increases the real interest rate and the after-tax real rate of interest.
B)  Increases the real interest rate and the after-tax real rate of interest.
C)  does not change the real interest rate but raises the after tax real rate of interest.
D)  does not change the real interest rate but reduces the after-tax real rate of interest.E) A) and D)
F) All of the above

Question 11

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Accepted Answer

A)  selling bonds on the open market, which would have raised the value of money.
B)  purchasing bonds on the open market, which would have raised the value of money.
C)  Selling bonds on the open market, which would have raised the value of money.
D)  purchasing bonds on the open market, which would have lowered the value of money.E) None of the above
F) A) and D)

Question 12

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after-tax real rate of interest

Accepted Answer

A)  will be 1.2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
B)  will be 1.2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
C)  will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
D)  will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.E) A) and B)
F) A) and C)

Question 13

Jimmy Carter, Ronald Reagan, and Gerald Ford are all U.S. presidents whose political careers were helped by inflation.

Accepted Answer

A) True 
 B)False

Question 14

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

A)  higher than she had expected, and the real value of the loan is higher than she had expected.
B)  higher than she had expected, and the real value of the loan is lower than she had expected.
C)  lower than she had expected, and the real value of the loan is higher than she had expected.
D)  lower then she had expected, and the real value of the loan is lower than she had expected.E) B) and C)
F) A) and C)

Question 15

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

nominal interest rat...

Question 16

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

Question 17

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

Question 18

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Accepted Answer

A)  excess demand for money which causes the price level to rise.
B)  excess demand for money which causes the price level to fall.
C)  excess supply of money which causes the price level to rise.
D)  excess supply of money which causes the price level to fall.E) A) and B)
F) A) and C)

Question 19

In which of the following cases is the after-tax real interest rate highest?

Accepted Answer

A)  inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 20%.
B)  inflation is 6%, the pre-tax real interest rate is 3%, and the tax rate is 25%.
C)  inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 20%.
D)  inflation is 4%, the pre-tax real interest rate is 2%, and the tax rate is 25%.E) None of the above
F) B) and C)

Question 20

​Unexpected and large deflation is desirable, according to the Friedman rule.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

Over the last 80 years, the average annual U.S. inflation rate was about

Correct AnswerverifiedShow Answer

Banks advertise

Correct AnswerverifiedShow Answer

Jimmy Carter, Ronald Reagan, and Gerald Ford are all U.S. presidents whose political careers were helped by inflation.

Correct AnswerverifiedShow Answer

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

Correct AnswerverifiedShow Answer

The consumer price index increases from 200 to 208. What is the inflation rate?

Correct AnswerverifiedShow Answer

Norma complains that she is not receiving the full benefit of her six percent raise, because inflation is two percent. You tell her that nominal incomes tend to rise with inflation, therefore

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following cases is the after-tax real interest rate highest?

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts. ...View AnswerShow 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

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Correct AnswerverifiedShow Answer

Sam deposits money into an account with a nominal interest rate of 4 percent. He expects inflation to be 1.5 percent. His tax rate is 32 percent. Sam's after-tax real rate of interest

Correct AnswerverifiedShow Answer

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Correct AnswerverifiedShow Answer

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 6 percent?

Correct AnswerverifiedShow Answer

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Correct AnswerverifiedShow Answer

​Unexpected and large deflation is desirable, according to the Friedman rule.

Correct AnswerverifiedShow Answer

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Correct AnswerverifiedShow Answer

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Correct Answerverifiednominal interest rat...View AnswerShow Answer

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

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
Most had large nominal debts. ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Unexpected and large deflation is desirable, according to the Friedman rule.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
nominal interest rat...
View Answer

Correct Answer
verified