Question 1

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

We must suppose that V is rela...

Question 2

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses.They purchased the land for $100,000.They sold if for $180,000.During the time they held it the price level rose from 80 to 120.If your parents face a 25% tax rate,what was their real after-tax gain? (Hint: What's the real value of the land in current prices?)

Accepted Answer

The answer of Fifteen years ago your parents purchased some...

Question 3

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.the Fed increases the money supply.
b.people decide to demand less money at each value of money.

Accepted Answer

a.The Fed increases the money supply. ...

Question 4

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States 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 the inflation rate lead to one-to-one increases in nominal interest rates. The quantity theory says that in the long run, inflation increases one-to-one with money supply growth. It follows that differences in nominal interest rates may be due to differences in money supply growth rates. It is reasonable to guess that much higher nominal interest rates in Venezuela and Russia indicate higher money supply growth while lower interest rates in Japan indicate lower money supply growth.

Question 5

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

nominal, r...

Question 6

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Question 7

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

Accepted Answer

The costs include:

the resources wasted...

Question 8

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _______.

Accepted Answer

The answer of You hear an economist state the following:...

Question 9

An increase in the price level means that a dollar buys__________ goods and services so the value of a dollar __________.

Accepted Answer

The answer of An increase in the price level means...

Question 10

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 11

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _______ and real GDP to _________.

Accepted Answer

double, re...

Question 12

Money neutrality states that a change in the money supply affects_______ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the _________.

Accepted Answer

nominal, long run

Question 13

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Accepted Answer

The answer of In the early 1920s U.S. consumer prices...

Question 14

A decrease in the value of money ________the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ________.

Accepted Answer

increases, a movemen...

Question 15

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

Accepted Answer

nominal va...

Question 16

If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

Accepted Answer

The value ...

Question 17

Some countries have experienced an extraordinarily high rate of inflation known as _____. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _____.

Accepted Answer

hyperinfla...

Question 18

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as _____.

Accepted Answer

shoeleather costs

Question 19

In the long run an increase in the money supply causes the price level to _________.The price level moves in this direction because an increase in the money supply creates _________ in the money market that causes people to _________ spending.

Accepted Answer

rise, exce...

Question 20

In the U.S., taxes are paid on one’s _____ gains/returns. Therefore, a _____ inflation rate encourages more saving

Accepted Answer

The answer of In the U.S., taxes are paid on...

Exam 17: Money Growth and Inflation: Part A

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Correct Answer
verified
We must suppose that V is rela...
View Answer

Correct Answer
verified

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a.the Fed increases the money supply. b.people decide to demand less money at each value of money.

Correct Answer
verified

a.The Fed increases the money supply. ...
View Answer

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

Correct Answer
verified
nominal, r...
View Answer

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

Correct Answer
verified

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

Correct Answer
verified
The costs include:
the resources wasted...
View Answer

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _______.

Correct Answer
verified

An increase in the price level means that a dollar buys goods and services so the value of a dollar .

Correct Answer
verified

Why did farmers in the late 1800s dislike deflation?

Correct Answer
verified
Most had large nominal debts. ...
View Answer

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _ and real GDP to ___.

Correct Answer
verified
double, re...
View Answer

Money neutrality states that a change in the money supply affects_ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the ___.

Correct Answer
verified
nominal, long run

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

Correct Answer
verified

A decrease in the value of money the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as .

Correct Answer
verified
increases, a movemen...
View Answer

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

Correct Answer
verified
nominal va...
View Answer

If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

Correct Answer
verified
The value ...
View Answer

Some countries have experienced an extraordinarily high rate of inflation known as _. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _.

Correct Answer
verified
hyperinfla...
View Answer

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as _____.

Correct Answer
verified
shoeleather costs

In the long run an increase in the money supply causes the price level to _____.The price level moves in this direction because an increase in the money supply creates _ in the money market that causes people to _____ spending.

Correct Answer
verified
rise, exce...
View Answer

In the U.S., taxes are paid on one’s _ gains/returns. Therefore, a _ inflation rate encourages more saving

Correct Answer
verified

Exam 17: Money Growth and Inflation: Part A

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Correct AnswerverifiedWe must suppose that V is rela...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a.the Fed increases the money supply. b.people decide to demand less money at each value of money.

Correct Answerverifieda.The Fed increases the money supply. ...View AnswerShow Answer

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Correct Answerverifiednominal, r...View AnswerShow Answer

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe costs include: the resources wasted...View AnswerShow Answer

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _______.

Correct AnswerverifiedShow Answer

An increase in the price level means that a dollar buys__________ goods and services so the value of a dollar __________.

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

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

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _______ and real GDP to _________.

Correct Answerverifieddouble, re...View AnswerShow Answer

Money neutrality states that a change in the money supply affects_______ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the _________.

Correct Answerverifiednominal, long run

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Correct AnswerverifiedShow Answer

A decrease in the value of money ________the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ________.

Correct Answerverifiedincreases, a movemen...View AnswerShow Answer

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

Correct Answerverifiednominal va...View AnswerShow Answer

If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

Correct AnswerverifiedThe value ...View AnswerShow Answer

Some countries have experienced an extraordinarily high rate of inflation known as _____. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _____.

Correct Answerverifiedhyperinfla...View AnswerShow Answer

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as _____.

Correct Answerverifiedshoeleather costs

In the long run an increase in the money supply causes the price level to _________.The price level moves in this direction because an increase in the money supply creates _________ in the money market that causes people to _________ spending.

Correct Answerverifiedrise, exce...View AnswerShow Answer

In the U.S., taxes are paid on one’s _____ gains/returns. Therefore, a _____ inflation rate encourages more saving

Correct AnswerverifiedShow Answer

Correct Answer
verified
We must suppose that V is rela...
View Answer

Correct Answer
verified

Correct Answer
verified

a.The Fed increases the money supply. ...
View Answer

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

Correct Answer
verified
nominal, r...
View Answer

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

Correct Answer
verified

Correct Answer
verified
The costs include:
the resources wasted...
View Answer

Correct Answer
verified

An increase in the price level means that a dollar buys goods and services so the value of a dollar .

Correct Answer
verified

Correct Answer
verified
Most had large nominal debts. ...
View Answer

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _ and real GDP to ___.

Correct Answer
verified
double, re...
View Answer

Money neutrality states that a change in the money supply affects_ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the ___.

Correct Answer
verified
nominal, long run

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

Correct Answer
verified

A decrease in the value of money the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as .

Correct Answer
verified
increases, a movemen...
View Answer

Correct Answer
verified
nominal va...
View Answer

Correct Answer
verified
The value ...
View Answer

Some countries have experienced an extraordinarily high rate of inflation known as _. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _.

Correct Answer
verified
hyperinfla...
View Answer

Correct Answer
verified
shoeleather costs

In the long run an increase in the money supply causes the price level to _____.The price level moves in this direction because an increase in the money supply creates _ in the money market that causes people to _____ spending.

Correct Answer
verified
rise, exce...
View Answer

In the U.S., taxes are paid on one’s _ gains/returns. Therefore, a _ inflation rate encourages more saving

Correct Answer
verified