Question 1

The theory that most economists rely on to explain inflation is called the .

Accepted Answer

The answer of The theory that most economists rely on...

Question 2

Monetary neutrality means that a change in the money supply

Accepted Answer

A)   does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run.
B)   does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.
C)   does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run.
D)   does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

A)   money demand slopes upward and money supply is horizontal.
B)   money demand slopes downward and money supply is horizontal.
C)   money demand slopes upward and money supply is vertical.
D)   money demand slopes downward and money supply is vertical.E) B) and C)
F) A) and B)

Question 4

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

Question 5

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Accepted Answer

The answer of An increase in the price level means...

Question 6

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)   excess demand for money that will result in an increase in spending.
B)   excess demand for money that will result in a decrease in spending.
C)   excess supply of money that will result in an increase in spending.
D)   excess supply of money that will result in a decrease in spending.E) A) and B)
F) A) and C)

Question 7

The price level is a

Accepted Answer

A)   relative variable.
B)   dichotomous variable
C)   real variable.
D)   nominal variable.E) A) and B)
F) A) and C)

Question 8

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Accepted Answer

A)   deflation; 2 percent
B)   deflation; 10 percent
C)   inflation; 2 percent
D)   inflation; 10 percentE) B) and C)
F) A) and D)

Question 9

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Accepted Answer

The answer of You hear an economist state the following:...

Question 10

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Accepted Answer

A)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
B)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
C)   your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
D)   your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.E) A) and C)
F) All of the above

Question 11

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) None of the above
F) All of the above

Question 12

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Accepted Answer

The answer of In the early 1920s U.S. consumer prices...

Question 13

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A)   the inflation rate and real interest rates.
B)   the inflation rate, but not real interest rates.
C)   real interest rates, but not the inflation rate.
D)   neither the inflation rate nor real interest rates.E) B) and C)
F) B) and D)

Question 14

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Accepted Answer

A)   .031-.20) 
B)   .041 -.20) 
C)   .041 - .20)  - .01
D)   None of the above is correct.E) A) and C)
F) C) and D)

Question 15

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 16

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Accepted Answer

A) True 
 B)False

Question 17

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements concerning the history of U.S. inflation is not correct?

Accepted Answer

A)   Prices rose at an average annual rate of about 3.6 percent over the last 80 years.
B)   There was about a 17-fold increase in the price level over the last 80 years.
C)   Inflation in the 1970s was below the average over the last 80 years.
D)   The United States has experienced periods of deflation.E) All of the above
F) A) and B)

Question 19

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

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 20

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) None of the above

Exam 22: Money Growth and Inflation

An increase in the price level means that a dollar buys __________ goods and services so the value of a dollar __________.

Correct AnswerverifiedShow Answer

When inflation rises, firms make

Correct AnswerverifiedShow 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

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Correct AnswerverifiedShow Answer

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The value of money rises as the price level

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Correct AnswerverifiedShow Answer

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Correct AnswerverifiedShow Answer

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Correct AnswerverifiedShow Answer

The real interest rate is 4 percent and the nominal interest rate is 6 percent. Is there inflation or deflation? What is the inflation or deflation rate?

Correct AnswerverifiedShow Answer

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

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

The price level is a

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The theory that most economists rely on to explain inflation is called the .

Correct AnswerverifiedShow Answer

Which of the following statements concerning the history of U.S. inflation is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Correct AnswerverifiedShow Answer

An increase in the price level means that a dollar buys goods and services so the value of a dollar .

Correct Answer
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The Fisher effect says that increases in...
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In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

Correct Answer
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The costs include:
Shoeleather costs: th...
View Answer

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