Question 1

When inflation falls, people

Accepted Answer

A)   make less frequent trips to the bank and firms make less frequent price changes.
B)   make less frequent trips to the bank while firms make more frequent price changes.
C)   make more frequent trips to the bank while firms make less frequent price changes.
D)   make more frequent trips to the bank and firms make more frequent price changes.E) B) and C)
F) A) and D)

Question 2

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent; the tax rate is 25 percent.
B)   Inflation is 2 percent; the tax rate is 50 percent.
C)   Inflation is 1 percent; the tax rate is 75 percent.
D)   The after-tax real interest rate is the same for all of the above.E) A) and B)
F) B) and C)

Question 3

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A)   9 percent inflation in the United States
B)   -1 percent inflation in Russia
C)   25 percent inflation in Venezuela
D)   2 percent inflation in JapanE) A) and B)
F) A) and D)

Question 4

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)   The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
B)   The dollar amount you pay is a real value. The number of goods you give up is a nominal value.
C)   Both the dollar amount you pay and the goods you give up are nominal values.
D)   Both the dollar amount you pay and the goods you give up are real values.E) All of the above
F) C) and D)

Question 5

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
 1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010? A)  -33 percent B)  17 percent C)  50 percent D)  67 percent " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-3. At the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Accepted Answer

A)   -33 percent
B)   17 percent
C)   50 percent
D)   67 percentE) A) and C)
F) B) and C)

Question 6

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   1.2 percent
B)   2.8 percent
C)   4.8 percent
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 7

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 need 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 need 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) B) and C)
F) A) and D)

Question 8

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 9

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays 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) All of the above
F) A) and B)

Question 10

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A)   The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
B)   The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
C)   The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
D)   The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.E) None of the above
F) B) and C)

Question 11

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 12

The idea that inflation by itself reduces people's purchasing power is called

Accepted Answer

A)   the inflation tax.
B)   menu costs.
C)   the inflation fallacy.
D)   shoeleather costs.E) A) and B)
F) B) and C)

Question 13

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 14

Shawn puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 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)   None of the above is correct.E) All of the above
F) A) and B)

Question 15

There was hyperinflation during the

Accepted Answer

A)   period 1880-1896 in the United States.
B)   1970s in the United States.
C)   early part of the current century in Zimbabwe.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 16

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

Accepted Answer

A)   the quantity of money demanded and the quantity of money supplied
B)   the quantity of money demanded but not the quantity of money supplied
C)   the quantity of money supplied but not the quantity of money demanded
D)   neither the quantity of money supplied nor the quantity of money demandedE) A) and B)
F) A) and C)

Question 17

Other things the same, an increase in velocity means that

Accepted Answer

A)   transactions per dollar increase so the price level rises.
B)   transactions per dollar increase so the price level falls.
C)   transactions per dollar decrease so the price level rises.
D)   transactions per dollar decrease so the price level falls.E) B) and C)
F) B) and D)

Question 18

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then

Accepted Answer

A)   both the nominal and the real interest rate rise.
B)   neither the nominal nor the real interest rate rise.
C)   the nominal interest rate rises, but the real interest rate does not.
D)   the real interest rate rises, but the nominal interest rate does not.E) B) and C)
F) C) and D)

Question 19

The inflation tax

Accepted Answer

A)   is an alternative to income taxes and government borrowing.
B)   taxes most those who hold the most money.
C)   is the revenue created when the government prints money.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 20

Which movie is an allegory about late 19th century monetary policy?

Accepted Answer

A)   The Wizard of Oz
B)   Mary Poppins
C)   It's a Wonderful Life
D)   Trading PlacesE) C) and D)
F) A) and B)

Exam 12: Money Growth and Inflation

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Correct Answer
verified

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct Answer
verified

Why did farmers in the late 1800s dislike deflation?

Correct Answer
verified
Most had large nominal debts. ...
View Answer

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Correct Answer
verified

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then

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

The idea that inflation by itself reduces people's purchasing power is called

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Other things the same, an increase in velocity means that

Correct Answer
verified

Which movie is an allegory about late 19th century monetary policy?

Correct Answer
verified

There was hyperinflation during the

Correct Answer
verified

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Which country is correctly matched with its 2009 inflation rate?

Correct Answer
verified

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Correct Answer
verified

When inflation falls, people

Correct Answer
verified

The inflation tax

Correct Answer
verified

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Correct Answer
verified

Exam 12: Money Growth and Inflation

Yvonne takes out a fixed-interest-rate loan and then inflation turns out to be higher than she had expected it to be. The real interest rate she pays is

Correct AnswerverifiedShow Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts. ...View AnswerShow Answer

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then

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

The idea that inflation by itself reduces people's purchasing power is called

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

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

Correct AnswerverifiedShow Answer

Other things the same, an increase in velocity means that

Correct AnswerverifiedShow Answer

Which movie is an allegory about late 19th century monetary policy?

Correct AnswerverifiedShow Answer

There was hyperinflation during the

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which country is correctly matched with its 2009 inflation rate?

Correct AnswerverifiedShow Answer

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Correct AnswerverifiedShow Answer

When inflation falls, people

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow Answer

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Most had large nominal debts. ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified