Question 1

According to the quantity equation,the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)   either a rise in output or a rise in the rate at which money changes hands.
B)   either a rise in output or a fall in the rate at which money changes hands.
C)   either a fall in output or a rise in the rate at which money changes hands.
D)   either a fall in output or a fall in the rate at which money changes hands.E) All of the above
F) C) and D)

Question 2

Define each of the symbols and explain the meaning of M  V = P  Y.

Accepted Answer

M is the quantity of money,V is the velo...

Question 3

Open-market purchases by the Fed make the money supply

Accepted Answer

A)   increase,which makes the value of money increase.
B)   increase,which makes the value of money decrease.
C)   decrease,which makes the value of money decrease.
D)   decrease,which makes the value of money increase.E) B) and D)
F) A) and D)

Question 4

You put money into an account that earns a 5 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   3.4 percent
B)   1.6 percent
C)   1.0 percent
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 5

Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while hus money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Accepted Answer

A)   3.5 percent and a real interest rate of 5 percent.
B)   3.5 percent and a real interest rate of 2 percent.
C)   5 percent and a real interest rate of 3.5 percent
D)   5 percent and a real interest rate of 2 percentE) B) and D)
F) A) and D)

Question 6

When the money market is drawn with the value of money on the vertical axis,as the price level increases,the value of money

Accepted Answer

A)   increases,so the quantity of money demanded increases.
B)   increases,so the quantity of money demanded decreases.
C)   decreases,so the quantity of money demanded decreases.
D)   decreases,so the quantity of money demanded increases.E) None of the above
F) All of the above

Question 7

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) B) and C)
F) C) and D)

Question 8

The term hyperinflation refers to

Accepted Answer

A)   the spread of inflation from one country to others.
B)   a decrease in the inflation rate.
C)   a period of very high inflation.
D)   inflation accompanied by a recession.E) A) and D)
F) A) and C)

Question 9

According to the classical dichotomy,which of the following is not influenced by monetary factors?

Accepted Answer

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

Question 10

Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A)   The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
B)   The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
C)   The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
D)   The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.E) B) and C)
F) None of the above

Question 11

If inflation is higher than expected,then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 12

The money supply in Muckland is $100 billion.Nominal GDP is $800 billion and real GDP is $400 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) B) and C)
F) A) and D)

Question 13

Suppose the United States unexpectedly decided to pay off its debt by printing new money.Which of the following would happen?

Accepted Answer

A)   People who held money would feel poorer.
B)   Prices would rise.
C)   People who had lent money at a fixed interest rate would feel poorer.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 14

Wealth is redistributed from debtors to creditors when inflation is

Accepted Answer

A)   high,whether it is expected or not.
B)   low,whether it is expected or not.
C)   unexpectedly high.
D)   unexpectedly low.E) A) and D)
F) All of the above

Question 15

If the Fed increases the money supply,then 1/P

Accepted Answer

A)   falls,so the value of money falls.
B)   falls,so the value of money rises.
C)   rises,so the value of money falls.
D)   rises,so the value of money rises.E) None of the above
F) A) and B)

Question 16

When the money market is drawn with the value of money on the vertical axis,a decrease in the price level causes a

Accepted Answer

A)   movement to the right along the money demand curve.
B)   movement to the left along the money demand curve.
C)   shift to the right of the money supply curve.
D)   shift to the left of the money supply curve.E) A) and D)
F) B) and C)

Question 17

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) None of the above
F) B) and D)

Question 18

When deciding how much to save,people care most about

Accepted Answer

A)   after-tax nominal interest rates.
B)   after-tax real interest rates.
C)   before-tax real interest rates.
D)   before-tax nominal interest rates.E) None of the above
F) A) and C)

Question 19

When the money market is drawn with the value of money on the vertical axis,if the Fed sells bonds then

Accepted Answer

A)   the money supply and the price level increase.
B)   the money supply and the price level decrease.
C)   the money supply increases and the price level decreases.
D)   the money supply increases and the price level increases.E) All of the above
F) A) and B)

Question 20

Suppose the nominal interest rate is 5 percent,the tax rate on interest income is 30 percent,and the after-tax real interest rate is 2.1percent.Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Exam 22: Money Growth and Inflation

If the Fed increases the money supply,then 1/P

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According to the classical dichotomy,which of the following is not influenced by monetary factors?

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The term hyperinflation refers to

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According to the quantity equation,the price level would change less than proportionately with a rise in the money supply if there were also

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Define each of the symbols and explain the meaning of M V = P Y.

Correct AnswerverifiedM is the quantity of money,V is the velo...View AnswerShow Answer

You put money into an account that earns a 5 percent nominal interest rate.The inflation rate is 3 percent,and your marginal tax rate is 20 percent.What is your after-tax real rate of interest?

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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

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The money supply in Muckland is $100 billion.Nominal GDP is $800 billion and real GDP is $400 billion.What are the price level and velocity in Muckland?

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If inflation is higher than expected,then lenders receive interest payments whose real values are less than they expected.

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When the money market is drawn with the value of money on the vertical axis,a decrease in the price level causes a

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Banks advertise

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When the money market is drawn with the value of money on the vertical axis,as the price level increases,the value of money

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Darla puts her money into a bank account that earns interest.One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

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Suppose the nominal interest rate is 5 percent,the tax rate on interest income is 30 percent,and the after-tax real interest rate is 2.1percent.Then the inflation rate is 2 percent.

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Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while hus money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Correct AnswerverifiedShow Answer

Suppose the United States unexpectedly decided to pay off its debt by printing new money.Which of the following would happen?

Correct AnswerverifiedShow Answer

Open-market purchases by the Fed make the money supply

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,if the Fed sells bonds then

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When deciding how much to save,people care most about

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Wealth is redistributed from debtors to creditors when inflation is

Correct AnswerverifiedShow Answer

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M is the quantity of money,V is the velo...
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