Question 1

The value of money rises as the price level

Accepted Answer

A)   rises, because the number of dollars needed to buy a representative basket of goods rises.
B)   rises, because the number of dollars needed to buy a representative basket of goods falls.
C)   falls, because the number of dollars needed to buy a representative basket of goods rises.
D)   falls, because the number of dollars needed to buy a representative basket of goods falls.E) A) and B)
F) A) and D)

Question 2

Figure 30-1 
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

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

Question 3

If the CPI 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) All of the above
F) A) and B)

Question 4

If the price level increased from 200 to 250, then what was the inflation rate?

Accepted Answer

A)   50 percent
B)   25 percent
C)   20 percent
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 5

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Accepted Answer

A) True 
 B)False

Question 6

The idea of menu costs suggests that

Accepted Answer

A)   firms alter prices less frequently as inflation increases.
B)   firms alter prices more frequently as inflation increases.
C)   firms always alter prices when costs increase.
D)   firms alter prices as interest rates rise.E) C) and D)
F) A) and D)

Question 7

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   1.5 percent.
B)   2.5 percent.
C)   5.0 percent.
D)   4.5 percent.E) A) and B)
F) B) and D)

Question 8

The supply of money is determined by

Accepted Answer

A)   the price level.
B)   the Treasury and Congressional Budget Office.
C)   the Federal Reserve System.
D)   the demand for money.E) All of the above
F) A) and D)

Question 9

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

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 10

The quantity theory of money

Accepted Answer

A)   is a fairly recent addition to economic theory.
B)   can explain both moderate inflation and hyperinflation.
C)   argues that inflation is caused by too little money in the economy.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 11

Wealth is redistributed from debtors to creditors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.E) None of the above
F) A) and C)

Question 12

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

Accepted Answer

A)   the real wage.
B)   the real interest rate.
C)   the nominal interest rate.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 13

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A)   The nominal interest rate was 10 percent and the inflation rate was 6 percent.
B)   The nominal interest rate was 6 percent and the inflation rate was 2 percent.
C)   The nominal interest rate was 4 percent and the inflation rate was 2 percent.
D)   The nominal interest rate was 10 percent and the inflation rate was 4 percent.E) A) and D)
F) C) and D)

Question 14

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Accepted Answer

fallen, mo...

Question 15

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 16

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

Accepted Answer

A)   nominal and real GDP would rise by 5 percent.
B)   nominal GDP would rise by 5 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would rise by 5 percent.
D)   neither nominal GDP nor real GDP would change.E) A) and D)
F) C) and D)

Question 17

The money demand curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 18

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)   increase employment.
B)   increase the price level.
C)   increase the incentive to save.
D)   increase the real interest rate.E) B) and D)
F) All of the above

Question 19

When inflation rises, firms make

Accepted Answer

A)   more frequent price changes. This raises their menu costs.
B)   more frequent price changes. This reduces their menu costs.
C)   less frequent price changes. This raises their menu costs.
D)   less frequent price changes. This reduces their menu costs.E) A) and B)
F) C) and D)

Question 20

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) A) and B)

Exam 30: Money Growth and Inflation

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

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

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When inflation rises, firms make

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The supply of money is determined by

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When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Correct Answerverifiedfallen, mo...View AnswerShow Answer

The quantity theory of money

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You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

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Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

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The money demand curve shifts to the left when the Fed buys government bonds.

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If the CPI rises, the number of dollars needed to buy a representative basket of goods

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Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

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

Correct AnswerverifiedThe costs include:Shoeleather costs: th...View AnswerShow Answer

If the price level increased from 200 to 250, then what was the inflation rate?

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The value of money rises as the price level

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Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

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Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

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Monetary neutrality implies that an increase in the quantity of money will

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Wealth is redistributed from debtors to creditors when inflation was expected to be

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The idea of menu costs suggests that

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When the consumer price index increases, the value of your money has _. According to the quantity theory of money this is caused by an increase in the _.

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fallen, mo...
View Answer

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Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

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The costs include:
Shoeleather costs: th...
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