Question 1

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

Question 2

The value of money falls 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) C) and D)
F) B) and D)

Question 3

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Accepted Answer

A)   raised both the price level and the value of gold in Cairo.
B)   raised the price level, but decreased the value of gold in Cairo.
C)   lowered the price level, but increased the value of gold in Cairo.
D)   lowered both the price level and the value of gold in Cairo.E) B) and C)
F) C) and D)

Question 4

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Accepted Answer

A)   nominal wage is higher.
B)   nominal wage is lower.
C)   real wage is higher.
D)   real wage is lower.E) C) and D)
F) B) and C)

Question 5

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) B) and D)
F) A) and C)

Question 6

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Accepted Answer

A)   $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
B)   8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
C)   $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
D)   8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) A) and C)
F) B) and D)

Question 7

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 8

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) C) and D)
F) A) and D)

Question 9

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

Question 10

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

Accepted Answer

A)   2.4 percent.
B)   3.5 percent.
C)   8.5 percent.
D)   15 percent.E) B) and C)
F) A) and D)

Question 11

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns 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) A) and C)
F) None of the above

Question 12

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Accepted Answer

An increase in inflation reduc...

Question 13

If a country experienced deflation, then

Accepted Answer

A)   the nominal interest rate would be greater than the real interest rate.
B)   the real interest rate would be greater than the nominal interest rate.
C)   the real interest rate would equal the nominal interest rate.
D)   nominal GDP would be greater than the money supply.E) B) and D)
F) None of the above

Question 14

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

Accepted Answer

The answer of Your grandfather tells you that his annual...

Question 15

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)   spend more time looking for bargains.
B)   spend less time looking for bargains.
C)   hold more money.
D)   hold less money.E) A) and B)
F) All of the above

Question 16

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

Accepted Answer

A)   demanded increases.
B)   demanded decreases.
C)   supplied increases.
D)   supplied decreases.E) B) and D)
F) All of the above

Question 17

The supply of money is determined by

Accepted Answer

A)   the price level.
B)   the Treasury and Congressional Budget Office.
C)   the Federal Reserve System.
D)   the demand for money.E) A) and B)
F) All of the above

Question 18

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 his 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) None of the above
F) All of the above

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)   money demand shifts right and decreases if money supply shifts right.
B)   money demand shifts right and decreases if money supply shifts left.
C)   money demand shifts left and decreases if money supply shifts right.
D)   money demand shifts left and decreases if money supply shifts left.E) All of the above
F) A) and B)

Question 20

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

Correct Answer
verified

The supply of money is determined by

Correct Answer
verified

Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

Correct Answer
verified

Shoeleather costs arise when higher inflation rates induce people to

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Correct Answer
verified

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct Answer
verified

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Correct Answer
verified

The value of money rises as the price level

Correct Answer
verified

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

Correct Answer
verified

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

Correct Answer
verified

If a country experienced deflation, then

Correct Answer
verified

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 his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Correct Answer
verified

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Correct Answer
verified

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Correct Answer
verified
An increase in inflation reduc...
View Answer

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

Correct Answer
verified

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Correct Answer
verified

The value of money falls as the price level

Correct Answer
verified

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Correct Answer
verified

Exam 17: Money Growth and Inflation

Correct AnswerverifiedShow Answer

The supply of money is determined by

Correct AnswerverifiedShow Answer

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Correct AnswerverifiedShow Answer

Shoeleather costs arise when higher inflation rates induce people to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Correct AnswerverifiedShow Answer

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct AnswerverifiedShow Answer

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

Correct AnswerverifiedShow Answer

The value of money rises as the price level

Correct AnswerverifiedShow Answer

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

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

If a country experienced deflation, then

Correct AnswerverifiedShow Answer

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 his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Correct AnswerverifiedShow Answer

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Correct AnswerverifiedShow Answer

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Correct AnswerverifiedAn increase in inflation reduc...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

Correct AnswerverifiedShow Answer

The value of money falls as the price level

Correct AnswerverifiedShow Answer

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Given that firms change their prices infrequently, a business that has just raised its price will have a relative price; over time as its price remains fixed its relative price .

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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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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An increase in inflation reduc...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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