Question 1

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 2

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Accepted Answer

A)   nominal income and real income increased.
B)   nominal income increased, but their real income decreased.
C)   nominal income and real income decreased.
D)   nominal income decreased, but their real income increased.E) All of the above
F) C) and D)

Question 3

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 4

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Accepted Answer

A)   inflation-induced tax distortion.
B)   relative-price-variability cost.
C)   shoeleather cost.
D)   menu cost.E) C) and D)
F) None of the above

Question 5

In which case is velocity the highest?

Accepted Answer

A)   the price level equals 4, the money supply equals 5,000, and output equals 20,000.
B)   the price level equals 4, the money supply equals 20,000 and output equals 5,000.
C)   the price level equals 2, the money supply equals 5,000, and output equals 20,000.
D)   the price level equals 2, the money supply equals 20,000 and output equals 5,000.E) B) and C)
F) C) and D)

Question 6

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch...

Question 7

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A)   His real and nominal salary have risen.
B)   His real and nominal salary have fallen.
C)   His real salary has risen and his nominal salary has fallen.
D)   His real salary has fallen and his nominal salary has risen.E) None of the above
F) A) and C)

Question 8

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Accepted Answer

A)   The nominal interest rate was 11 percent and the inflation rate was 5 percent.
B)   The nominal interest rate was 6 percent and the inflation rate was 5 percent.
C)   The nominal interest rate was 5 percent and the inflation rate was -1 percent.
D)   The nominal interest rate was 6 percent and the inflation rate was 1 percent.E) A) and D)
F) A) and B)

Question 9

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

Accepted Answer

A)   both a nominal gain and a real gain, and you paid taxes on the nominal gain.
B)   both a nominal gain and a real gain, and you paid taxes only on the real gain.
C)   a nominal gain and a real loss, and you paid taxes on the nominal gain.
D)   a nominal gain and a real loss, and you paid no taxes on the transaction.E) A) and B)
F) C) and D)

Question 10

If Y and V are constant and M doubles, the quantity equation implies that the price level

Accepted Answer

A)   more than doubles.
B)   changes but less than doubles.
C)   doubles.
D)   does not changeE) A) and B)
F) None of the above

Question 11

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

Accepted Answer

A)   demanded increases.
B)   demanded decreases.
C)   supplied increases.
D)   supplied decreases.E) B) and D)
F) A) and C)

Question 12

The country of Lessidinia has a tax system identical to that of the United States. Suppose someone in Lessidinia bought a parcel of land for 20,000 foci the local currency)  in 1960 when the price index equaled 100. In 2002, the person sold the land for 100,000 foci, and the price index equaled 600. The tax rate on nominal gains was 20 percent. Compute the taxes on the nominal gain and the change in the real value of the land in terms of 2002 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)   -60 percent
B)   -30 percent
C)   30 percent
D)   60 percentE) A) and B)
F) B) and D)

Question 13

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Accepted Answer

A)   the value of money rises which will make people desire to hold more money.
B)   the value of money rises which will make people desire to hold less money.
C)   the value of money falls which will make people desire to hold more money.
D)   the value of money falls which will make people desire to hold less money.E) None of the above
F) B) and D)

Question 14

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

Accepted Answer

A)   only if the increase in her nominal income is less than six percent.
B)   only if the increase in her nominal income is more than six percent.
C)   since inflation always reduces purchasing power.
D)   only if her real income increases.E) None of the above
F) C) and D)

Question 15

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 C)
F) B) and C)

Question 16

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

Accepted Answer

A)   and equilibrium quantity of money to increase.
B)   and equilibrium quantity of money to decrease.
C)   to increase, while the equilibrium quantity of money decreases.
D)   to decrease, while the equilibrium quantity of money increases.E) All of the above
F) C) and D)

Question 17

In the long run, money demand and money supply determine

Accepted Answer

A)   the value of money and the real interest rate.
B)   the value of money but not the real interest rate.
C)   the real interest rate but not the value of money.
D)   neither the value of money nor the real interest rate.E) B) and C)
F) A) and D)

Question 18

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Accepted Answer

A) True 
 B)False

Question 19

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Accepted Answer

A)   60 percent.
B)   80 percent.
C)   220 percent.
D)   24,000 percent.E) All of the above
F) A) and B)

Question 20

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

Exam 12: Money Growth and Inflation

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Correct Answer
verified

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct Answer
verified

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Correct Answer
verified

If Y and V are constant and M doubles, the quantity equation implies that the price level

Correct Answer
verified

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Correct Answer
verified

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

Correct Answer
verified

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Correct Answer
verified

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Correct Answer
verified

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Correct Answer
verified

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Correct Answer
verified

In which case is velocity the highest?

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

Correct Answer
verified

What are menu costs and why does high inflation increase menu costs?

Correct Answer
verified
Menu costs are the costs of ch...
View Answer

In the long run, money demand and money supply determine

Correct Answer
verified

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

Correct Answer
verified

Exam 12: Money Growth and Inflation

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Correct AnswerverifiedShow Answer

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct AnswerverifiedShow Answer

Shawn puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 5 percent more goods.

Correct AnswerverifiedShow Answer

If Y and V are constant and M doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Norma receives an increase in her nominal income. She complains that the current inflation rate of six percent erodes the real purchasing power of her additional nominal income. This is true

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then

Correct AnswerverifiedShow Answer

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Correct AnswerverifiedShow Answer

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Correct AnswerverifiedShow Answer

In which case is velocity the highest?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

Correct AnswerverifiedShow Answer

What are menu costs and why does high inflation increase menu costs?

Correct AnswerverifiedMenu costs are the costs of ch...View AnswerShow Answer

In the long run, money demand and money supply determine

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Menu costs are the costs of ch...
View Answer

Correct Answer
verified

Correct Answer
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