Question 1

Economic variables whose values are measured in monetary units are called

Accepted Answer

A)   dichotomous variables.
B)   nominal variables.
C)   classical variables.
D)   real variables.E) B) and C)
F) A) and D)

Question 2

An excess supply of money is eliminated by a falling price level

Accepted Answer

A) True 
 B)False

Question 3

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Accepted Answer

A)   the expected real interest rate is 7 percent.
B)   the expected real interest rate is 1 percent.
C)   the expected real interest rate is 1.33 percent.
D)   the expected real interest rate is 12 percent.E) None of the above
F) C) and D)

Question 4

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) All of the above

Question 5

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Accepted Answer

A)   excess demand for money which causes the price level to rise.
B)   excess demand for money which causes the price level to fall.
C)   excess supply of money which causes the price level to rise.
D)   excess supply of money which causes the price level to fall.E) B) and D)
F) A) and D)

Question 6

The evidence from hyperinflations indicates that money growth and inflation

Accepted Answer

A)   are positively related, which is consistent with the quantity theory of money.
B)   are positively related, which is not consistent with the quantity theory of money.
C)   are not related in a discernible fashion, which is consistent with the quantity theory of money.
D)   are not related in a discernible fashion, which is not consistent with the quantity theory of money.E) None of the above
F) B) and D)

Question 7

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Question 8

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Accepted Answer

A) True 
 B)False

Question 9

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)   the value of money.
B)   real interest rates.
C)   nominal interest rates.
D)   the money supply.E) A) and C)
F) C) and D)

Question 10

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Accepted Answer

A)   6.75.
B)   3.00.
C)   1.33.
D)   1.50.E) B) and C)
F) A) and D)

Question 11

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

Accepted Answer

A)   upward, because at higher prices people want to hold more money.
B)   downward, because at higher prices people want to hold more money.
C)   downward, because at higher price people want to hold less money.
D)   upward, because at higher prices people want to hold less money.E) B) and C)
F) A) and D)

Question 12

Printing money to finance government expenditures

Accepted Answer

A)   causes the value of money to rise.
B)   imposes a tax on everyone who holds money.
C)   is the principal method by which the U.S. government finances its expenditures.
D)   causes prices to fall.E) A) and B)
F) None of the above

Question 13

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)   inflation and nominal interest rates, but does not change real interest rates.
B)   inflation, nominal interest rates, and real interest rates.
C)   inflation and real interest rates, but does not change nominal interest rates.
D)   nominal interest rates and real interest rates, but does not change inflation.E) None of the above
F) All of the above

Question 14

Higher inflation makes relative prices

Accepted Answer

A)   more variable, making it more likely that resources will be allocated to their best use.
B)   more variable, making it less likely that resources will be allocated to their best use.
C)   less variable, making it more likely that resources will be allocated to their best use.
D)   less variable, making it less likely that resources will be allocated to their best use.E) A) and B)
F) A) and D)

Question 15

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

Question 16

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Question 17

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   2.2 percent
B)   2.7 percent
C)   11.7 percent
D)   7.7 percentE) A) and B)
F) A) and C)

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) All of the above

Question 19

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Accepted Answer

The nominal interest...

Question 20

If there is inflation, then a firm that has kept its price fixed for some time will have a

Accepted Answer

A)   high relative price. Relative-price variability rises as the inflation rate rises.
B)   high relative price. Relative-price variability falls as the inflation rate rises.
C)   low relative price. Relative-price variability rises as the inflation rate rises.
D)   low relative price. Relative-price variability falls as the inflation rate rises.E) A) and C)
F) A) and D)

Exam 22: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an

Correct AnswerverifiedShow Answer

The evidence from hyperinflations indicates that money growth and inflation

Correct AnswerverifiedShow Answer

If there is inflation, then a firm that has kept its price fixed for some time will have a

Correct AnswerverifiedShow Answer

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Correct AnswerverifiedShow Answer

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Correct AnswerverifiedThe nominal interest...View AnswerShow Answer

An excess supply of money is eliminated by a falling price level

Correct AnswerverifiedShow Answer

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Printing money to finance government expenditures

Correct AnswerverifiedShow Answer

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Correct AnswerverifiedShow Answer

Economic variables whose values are measured in monetary units are called

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

The idea of menu costs suggests that

Correct AnswerverifiedShow Answer

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

When deciding how much to save, people care most about

Correct AnswerverifiedShow Answer

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

Correct AnswerverifiedShow Answer

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Correct AnswerverifiedShow Answer

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Correct AnswerverifiedShow Answer

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One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

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The nominal interest...
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