Question 1

In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Accepted Answer

A)   decrease that benefited creditors at the expense of debtors.
B)   decrease that benefited debtors at the expense of creditors.
C)   increase that benefited creditors at the expense of debtors.
D)   increase that benefited debtors at the expense of creditors.E) B) and C)
F) A) and D)

Question 2

Higher inflation

Accepted Answer

A)   causes firms to change prices less frequently and makes relative prices less variable.
B)   causes firms to change prices less frequently and makes relative prices more variable.
C)   causes firms to change prices more frequently and makes relative prices less variable.
D)   causes firms to change prices more frequently and makes relative prices more variable.E) B) and C)
F) A) and C)

Question 3

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha...

Question 4

You put money in the bank. The increase in the dollar value of your savings

Accepted Answer

A)   and the change in the number of goods you can buy with your savings are both nominal variables.
B)   and the change in the number of goods you can buy with your savings are both real variables.
C)   is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.
D)   is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.E) B) and D)
F) A) and B)

Question 5

Other things the same, an increase in velocity means that

Accepted Answer

A)   the rate at which money changes hands falls, so the price level rises.
B)   the rate at which money changes hands falls, so the price level falls.
C)   the rate at which money changes hands rises, so the price level rises.
D)   the rate at which money changes hands rises, so the price level falls.E) None of the above
F) A) and C)

Question 6

When inflation rises, people tend to go to the bank

Accepted Answer

A)   more often, giving rise to menu costs.
B)   more often, giving rise to shoeleather costs.
C)   less often, giving rise to redistribution costs.
D)   less often, thereby lessening the severity of the inflation tax.E) A) and B)
F) A) and D)

Question 7

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...

Question 8

The money supply curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Accepted Answer

A) True 
 B)False

Question 9

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)   6 percent
B)   5 percent
C)   1.5 percent
D)   1 percentE) None of the above
F) A) and B)

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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

Question 12

If M = 5,000, P = 3, and Y = 10,000, what is velocity?

Accepted Answer

A)   6
B)   1.5
C)   2/3
D)   1/6E) A) and B)
F) All of the above

Question 13

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) A) and B)
F) B) and C)

Question 14

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

Question 15

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

Accepted Answer

A)   Friedman Effect.
B)   Hume Effect.
C)   Fisher Effect.
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 16

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

A)   higher than she had expected, and the real value of the loan is higher than she had expected.
B)   higher than she had expected, and the real value of the loan is lower than she had expected.
C)   lower than she had expected, and the real value of the loan is higher than she had expected.
D)   lower then she had expected, and the real value of the loan is lower than she had expected.E) None of the above
F) A) and B)

Question 17

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 18

The Fisher effect

Accepted Answer

A)   says the government can generate revenue by printing money.
B)   says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)   explains how higher money supply growth leads to higher inflation.
D)   explains how prices adjust to obtain equilibrium in the money market.E) A) and C)
F) A) and D)

Question 19

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

Accepted Answer

A)   either money demand or money supply shifts right.
B)   either money demand or money supply shifts left.
C)   money demand shifts right or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) A) and C)
F) B) and C)

Question 20

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Accepted Answer

A)   The country has high money supply growth.
B)   Inflation is acting like a tax on everyone who holds money.
C)   The government is printing money to finance its expenditures.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Exam 12: Money Growth and Inflation

The price level rises if either

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Other things the same, an increase in velocity means that

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If M = 5,000, P = 3, and Y = 10,000, what is velocity?

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The money supply curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

Correct AnswerverifiedShow Answer

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

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The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the

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The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

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When inflation rises, people tend to go to the bank

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In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings. Income ta...View AnswerShow Answer

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Correct AnswerverifiedThe inflation tax refers to the fact tha...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?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

The Fisher effect

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You put money in the bank. The increase in the dollar value of your savings

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

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Higher inflation

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Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Correct AnswerverifiedShow Answer

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Correct AnswerverifiedShow Answer

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Inflation discourages savings. Income ta...
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The inflation tax refers to the fact tha...
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Correct Answer
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The Fisher effect says that increases in...
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Correct Answer
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Correct Answer
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Correct Answer
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