Question 1

If the number of dollars needed to buy a representative basket of goods falls, the price level

Accepted Answer

A)   falls, so the value of money falls.
B)   falls, so the value of money rises.
C)   rises, so the value of money falls.
D)   rises, so the value of money rises.E) All of the above
F) C) and D)

Question 2

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 3

When prices are falling, economists say that there is

Accepted Answer

A)   disinflation.
B)   deflation.
C)   a contraction.
D)   an inverted inflation.E) A) and B)
F) A) and C)

Question 4

A decrease in the money supply creates an excess

Accepted Answer

A)   supply of money that is eliminated by rising prices.
B)   supply of money that is eliminated by falling prices.
C)   demand for money that is eliminated by rising prices.
D)   demand for money that is eliminated by falling prices.E) C) and D)
F) All of the above

Question 5

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

Accepted Answer

A)   4 percent
B)   6 percent
C)   8 percent
D)   10 percentE) A) and B)
F) A) and C)

Question 6

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid 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) B) and C)
F) None of the above

Question 7

Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

Accepted Answer

A)   40 percent.
B)   33.3 percent.
C)   25 percent.
D)   50 percent.E) A) and B)
F) B) and C)

Question 8

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

Question 9

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) C) and D)
F) B) and C)

Question 10

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

Question 11

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Accepted Answer

A)   both higher inflation and higher nominal interest rates.
B)   a higher inflation rate, but not higher nominal interest rates.
C)   a higher nominal interest rate, but not higher inflation.
D)   neither a higher inflation rate nor a higher nominal interest rate.E) All of the above
F) B) and C)

Question 12

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

Question 13

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Accepted Answer

Both the nominal and real valu...

Question 14

Deflation

Accepted Answer

A)   increases incomes and enhances the ability of debtors to pay off their debts.
B)   increases incomes and reduces the ability of debtors to pay off their debts.
C)   decreases incomes and enhances the ability of debtors to pay off their debts.
D)   decreases incomes and reduces the ability of debtors to pay off their debts.E) C) and D)
F) All of the above

Question 15

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

Accepted Answer

A) True 
 B)False

Question 16

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Accepted Answer

The after- tax nominal interes...

Question 17

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

Accepted Answer

A)   both the price level and nominal GDP would rise by 5 percent.
B)   the price level would rise by 5 percent and nominal GDP would be unchanged.
C)   the price level would be unchanged and nominal GDP would rise by 5 percent.
D)   both the price level and nominal GDP would be unchanged.E) A) and B)
F) None of the above

Question 18

Figure 30-1 
-Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess

Accepted Answer

A)   demand for money that is represented by the distance between points A and C.
B)   demand for money that is represented by the distance between points A and B.
C)   supply of money that is represented by the distance between points A and C.
D)   supply of money that is represented by the distance between points A and B.E) B) and C)
F) B) and D)

Question 19

When the Consumer Price Index falls from 110 to 100

Accepted Answer

A)   there is inflation of 9.1% and the value of money decreases.
B)   there is deflation of 9.1% and the value of money increases.
C)   there is deflation of 10% and the value of money increases.
D)   there is inflation of 10% and the value of money decreases.E) C) and D)
F) A) and C)

Question 20

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

Accepted Answer

A)   nominal wages
B)   the price level
C)   nominal GDP
D)   All of the above are correct.E) A) and B)
F) All of the above

Exam 30: Money Growth and Inflation

If the inflation rate was 10%, and the tax rate was 25%, and you deposited money in a bank account that paid 14%, what is after tax real interest rate? Show you work.

Correct AnswerverifiedThe after- tax nominal interes...View AnswerShow Answer

If the quantity of money supplied is greater than the quantity demanded, then prices should fall.

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Printing money to finance government expenditures

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

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

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Suppose that in some tax year you earned a nominal interest rate of 6 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 3 percent. What was your tax rate?

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When the Consumer Price Index falls from 110 to 100

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Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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Figure 30-1 -Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess

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According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

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Deflation

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

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If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?

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If the number of dollars needed to buy a representative basket of goods falls, the price level

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Correct AnswerverifiedBoth the nominal and real valu...View AnswerShow Answer

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Correct AnswerverifiedShow Answer

A decrease in the money supply creates an excess

Correct AnswerverifiedShow Answer

When prices are falling, economists say that there is

Correct AnswerverifiedShow Answer

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Both the nominal and real valu...
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