Question 1

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

Accepted Answer

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

Question 2

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Accepted Answer

A)   The $750 is a nominal variable. The 300 cups of coffee is a real variable.
B)   The $750 is a real variable. The 300 cups of coffee is a nominal variable.
C)   Both the $750 and the 300 cups of coffee are nominal variables.
D)   Both the $750 and the 300 cups of coffee are real variables.E) All of the above
F) C) and D)

Question 3

Market economies rely on which of the following to allocate scarce resources?

Accepted Answer

A)   government
B)   consumers
C)   relative prices
D)   real interest ratesE) A) and B)
F) A) and C)

Question 4

When the price level rises, 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) A) and B)
F) C) and D)

Question 5

The price level rises if either

Accepted Answer

A)   money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a rise in the value of money.
B)   money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a fall in the value of money.
C)   money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a rise in the value of money.
D)   money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.E) C) and D)
F) All of the above

Question 6

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Question 7

If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is the real interest rate?

Accepted Answer

A)   8 percent
B)   2 percent
C)   15 percent
D)   1.7 percentE) C) and D)
F) None of the above

Question 8

Nominal GDP measures

Accepted Answer

A)   the total quantity of final goods and services produced.
B)   the dollar value of the economy's output of final goods and services.
C)   the total income received from producing final goods and services measured in constant dollars.
D)   the overall level of prices.E) All of the above
F) A) and B)

Question 9

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 10

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)   Austria in the 1920's.
B)   Hungary in the 1920's.
C)   Poland in the 1920's.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 11

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

Accepted Answer

A)   0.33.
B)   2.0.
C)   4.5.
D)   0.5.E) A) and D)
F) A) and C)

Question 12

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

Accepted Answer

A)   two percent and prices fell one percent.
B)   two percent and prices rose one percent.
C)   three percent and prices rose one percent.
D)   three percent and prices fell one percent.E) C) and D)
F) A) and B)

Question 13

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 14

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A)   mean that only real interest earnings are taxed.
B)   mean an end to taxing capital gains.
C)   mean an increase in average tax rates.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 15

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Accepted Answer

A)   The price level and velocity are both 8.
B)   The price level is 2 and velocity is 8.
C)   The price level and velocity are both 4.
D)   The price level is 4 and velocity is 8.E) A) and B)
F) A) and C)

Question 16

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

Accepted Answer

A)   0.167.
B)   1.
C)   4.
D)   36.E) A) and B)
F) A) and C)

Question 17

The primary reason people hold money is

Accepted Answer

A)   to keep wealth in a less liquid form.
B)   to use it as a medium of exchange.
C)   to use it for investment.
D)   to earn interest.E) B) and D)
F) B) and C)

Question 18

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

Accepted Answer

A)   9 percent
B)   2 percent
C)   18 percent
D)   3 percentE) None of the above
F) All of the above

Question 19

Velocity is

Accepted Answer

A)   Y/M x P)  and increases if dollars are exchanged less frequently.
B)   Y/M x P)  and increases if dollars are exchanged more frequently.
C)   P x Y) /M and increases if dollars are exchanged less frequently.
D)   P x Y) /M and increases if dollars are exchanged more frequently.E) A) and D)
F) A) and C)

Question 20

According to the classical dichotomy, which of the following is influenced by monetary factors?

Accepted Answer

A)   real GDP
B)   unemployment
C)   nominal interest rates
D)   All of the above are correct.E) B) and D)
F) B) and C)

Exam 22: Money Growth and Inflation

Velocity is

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Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

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The price level rises if either

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Nominal GDP measures

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If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is the real interest rate?

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The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

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James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

Correct AnswerverifiedShow Answer

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

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

If M = 9,000, P = 6, and Y = 1,500, what is velocity?

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The primary reason people hold money is

Correct AnswerverifiedShow Answer

Market economies rely on which of the following to allocate scarce resources?

Correct AnswerverifiedShow Answer

Indexing the tax system to take into account the effects of inflation would by itself

Correct AnswerverifiedShow Answer

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Correct AnswerverifiedShow Answer

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

Correct AnswerverifiedShow Answer

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Correct AnswerverifiedShow Answer

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Correct AnswerverifiedShow Answer

When the price level rises, the number of dollars needed to buy a representative basket of goods

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is influenced by monetary factors?

Correct AnswerverifiedShow Answer

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Correct AnswerverifiedShow Answer

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The after tax nominal interest...
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According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

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