Question 1

Money demand refers to

Accepted Answer

A)  the total quantity of financial assets that people want to hold.
B)  how much wealth people want to hold in liquid form.
C)  how much income people want to earn per year.
D)  how much currency the Federal Reserve decides to print.E) A) and B)
F) A) and D)

Question 2

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Accepted Answer

A)  Jane's nominal income and real income decreased this year.
B)  Jane's nominal income decreased this year, but her real income increased.
C)  Jane's nominal income and real income increased this year.
D)  Jane's nominal income increased this year, but her real income decreased.E) None of the above
F) A) and C)

Question 3

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

Question 4

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Accepted Answer

A decrease in veloci...

Question 5

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

Accepted Answer

The after tax nominal interest...

Question 6

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 7

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

Accepted Answer

The answer of It takes more money to purchase the...

Question 8

The principle of monetary neutrality implies that an increase in the money supply will increase

Accepted Answer

A)  real GDP and the price level.
B)  real GDP, but not the price level.
C)  the price level, but not real GDP.
D)  neither the price level nor real GDP.E) B) and C)
F) B) and D)

Question 9

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Accepted Answer

M x V = P ...

Question 10

Figure 30-1 2 and the value of money is 4, then the quantity of money A) demanded is greater than the quantity supplied; the price level will rise. B) demanded is greater than the quantity supplied; the price level will fall. C) supplied is greater than the quantity demanded; the price level will rise. D) supplied is greater than the quantity demanded; the price level will fall." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 4, then the quantity of money

Accepted Answer

A)  demanded is greater than the quantity supplied; the price level will rise.
B)  demanded is greater than the quantity supplied; the price level will fall.
C)  supplied is greater than the quantity demanded; the price level will rise.
D)  supplied is greater than the quantity demanded; the price level will fall.E) A) and C)
F) A) and B)

Question 11

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 12

The economy of Umrica uses palladium as its money. If the government discovers a large reserve of palladium on their land the

Accepted Answer

A)  supply of money decreases, the value of money rises, and prices fall.
B)  supply of money increases, the value of money falls, and prices rise.
C)  demand for money increases, the value of money rises, and prices rise.
D)  demand for money decreases, the value of money falls, and prices fall.E) A) and B)
F) A) and C)

Question 13

Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)  excess demand for money that will result in an increase in spending.
B)  excess demand for money that will result in a decrease in spending.
C)  excess supply of money that will result in an increase in spending.
D)  excess supply of money that will result in a decrease in spending.E) C) and D)
F) None of the above

Question 14

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  The nominal wage
B)  Real output
C)  Real interest rates
D)  The real wageE) B) and D)
F) B) and C)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.
B)  The quantity theory but not evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.
C)  Evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland but not the quantity theory.
D)  Neither the quantity theory nor evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.E) B) and C)
F) A) and B)

Question 17

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)  spend more time looking for bargains.
B)  spend less time looking for bargains.
C)  hold more money.
D)  hold less money.E) All of the above
F) A) and D)

Question 18

If the price level increased from 115 to 133, then what was the inflation rate?

Accepted Answer

A)  1.2 percent
B)  0.9 percent
C)  15.7 percent
D)  18.0 percentE) A) and B)
F) A) and C)

Question 19

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Accepted Answer

deflation,...

Question 20

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Accepted Answer

A)  both a nominal gain and a real gain, and you paid taxes on the nominal gain.
B)  both a nominal gain and a real gain, and you paid taxes only on the real gain.
C)  a nominal gain, but no real gain, and you paid taxes on the nominal gain.
D)  a nominal gain, but no real gain, and you paid no taxes on the transaction.E) A) and D)
F) A) and C)

Exam 30: Money Growth and Inflation

Shoeleather costs arise when higher inflation rates induce people to

Correct AnswerverifiedShow Answer

It takes more money to purchase the same amount of goods when prices _____. Therefore, the value of your money has ____.

Correct AnswerverifiedShow Answer

Which of the following can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

What direction of change in velocity could explain the price level increasing by a smaller percentage than the money supply? What would this change in velocity imply about the frequency with which money changes hands?

Correct AnswerverifiedA decrease in veloci...View AnswerShow Answer

Shoeleather costs and menu costs are both costs of anticipated inflation.

Correct AnswerverifiedShow Answer

Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Correct AnswerverifiedShow Answer

The principle of monetary neutrality implies that an increase in the money supply will increase

Correct AnswerverifiedShow Answer

The economy of Umrica uses palladium as its money. If the government discovers a large reserve of palladium on their land the

Correct AnswerverifiedShow Answer

A decrease in the overall price level (or falling prices) is called _____. An extraordinarily high rate of inflation is called _____.

Correct Answerverifieddeflation,...View AnswerShow 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 quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Correct AnswerverifiedM x V = P ...View AnswerShow Answer

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Correct AnswerverifiedShow Answer

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

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

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 4, then the quantity of money

Correct AnswerverifiedShow Answer

If the price level increased from 115 to 133, then what was the inflation rate?

Correct AnswerverifiedShow Answer

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Correct AnswerverifiedShow Answer

Money demand refers to

Correct AnswerverifiedShow Answer

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

Correct AnswerverifiedThe after tax nominal interest...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

It takes more money to purchase the same amount of goods when prices _. Therefore, the value of your money has .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A decrease in veloci...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A decrease in the overall price level (or falling prices) is called _. An extraordinarily high rate of inflation is called _.

Correct Answer
verified
deflation,...
View Answer

Correct Answer
verified

The quantity equation is expressed as _. The rate at which money changes hands is known as _.

Correct Answer
verified
M x V = P ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 30-1 -Refer to Figure 30-1. If the money supply is MS₂ and the value of money is 4, then the quantity of money

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The after tax nominal interest...
View Answer

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

Correct Answer
verified