Question 1

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Accepted Answer

A)  The price level and velocity are both 8.
B)  The price level is 2 and velocity is 8.
C)  The price level and velocity are both 4.
D)  The price level is 4 and velocity is 8.E) A) and C)
F) None of the above

Question 2

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A)  menu costs and shoeleather costs
B)  menu costs but not shoeleather costs
C)  shoeleather costs but not menu costs
D)  Menu costs but not shoeleather costsE) All of the above
F) B) and C)

Question 3

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 4

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) B) and C)
F) All of the above

Question 5

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

Accepted Answer

A)  Inflation is 5 percent; the tax rate is 40 percent.
B)  Inflation is 4 percent; the tax rate is 30 percent.
C)  Inflation is 3 percent; the tax rate is 45 percent.
D)  Inflation is 2 percent; the tax rate is 50 percent.E) C) and D)
F) B) and C)

Question 6

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Accepted Answer

A)  Unemployment
B)  Productivity
C)  Inflation
D)  Monetary policyE) C) and D)
F) B) and C)

Question 7

Confusion and inconvenience costs arise when inflation

Accepted Answer

A)  ​improves the store of value function of money.
B)  ​reduces the real value of the unit of account.
C)  introduces tax distortions on capital gains.
D)  ​reduces the real debt burden owed by borrowers.E) A) and B)
F) A) and C)

Question 8

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold if for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after-tax gain? (Hint: What's the real value of the land in current prices?)

Accepted Answer

The answer of Fifteen years ago your parents purchased some...

Question 9

Which of the following statements about inflation is correct?

Accepted Answer

A)  Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity.
B)  People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality.
C)  Nominal incomes are determined by nominal factors; they are not affected by real factors.
D)  Inflation does not in itself reduce people's real purchasing power.E) None of the above
F) B) and C)

Question 10

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Accepted Answer

A)  quantity theory of money.
B)  price-index theory of money.
C)  theory of hyperinflation.
D)  disequilibrium theory of money and inflation.E) All of the above
F) B) and C)

Question 11

Money demand refers to

Accepted Answer

A)  the total quantity of financial assets that people want to hold.
B)  how much income people want to earn per year.
C)  how much wealth people want to hold in liquid form.
D)  how much currency the Federal Reserve decides to print.E) A) and B)
F) None of the above

Question 12

Inflation is problematic if

Accepted Answer

A)  it is less than the percentage increase in nominal income.
B)  it is less than the nominal return on saving.
C)  it equals the growth rate of real GDP in the long run.
D)  it distorts relative prices, causing a misallocation of resources.E) A) and B)
F) A) and C)

Question 13

The supply of money increases when

Accepted Answer

A)  the price level falls.
B)  the interest rate increases.
C)  the Fed makes open-market purchases.
D)  money demand increases.E) B) and C)
F) A) and D)

Question 14

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 15

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Accepted Answer

The answer of One year ago Sam purchased bonds for...

Question 16

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Accepted Answer

A)  shift to the right of the money demand curve.
B)  shift to the left of the money demand curve.
C)  movement to the left along the money demand curve.
D)  movement to the right along the money demand curve.E) A) and B)
F) None of the above

Question 17

Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)  the demand for goods and services decreases.
B)  the economy's ability to produce goods and services increases.
C)  the equilibrium price level decreases.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 18

In which case below does a person's purchasing power from saving increase the most?

Accepted Answer

A)  the nominal interest rate = 10% and inflation = 8%
B)  the nominal interest rate = 9% and inflation = 6%
C)  the nominal interest rate = 8% and inflation = 4%
D)  the nominal interest rate = 7% and inflation = 2%E) A) and C)
F) A) and B)

Question 19

Relative-price variability is "automatic" when

Accepted Answer

A)  firms change prices only once in a while.
B)  firms change prices often.
C)  people increase the frequency of their trips to the bank.
D)  people decrease the frequency of their trips to the bank.E) A) and D)
F) B) and D)

Question 20

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A)  increases the price level and increases the value of money.
B)  increases the price level and decreases the value of money.
C)  decreases the price level and increases the value of money.
D)  decreases the price level and decreases the value of money.E) A) and D)
F) B) and C)

Exam 30: Money Growth and Inflation

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Correct Answer
verified

Relative-price variability is "automatic" when

Correct Answer
verified

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Correct Answer
verified

Confusion and inconvenience costs arise when inflation

Correct Answer
verified

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Correct Answer
verified

Correct Answer
verified

The supply of money increases when

Correct Answer
verified

Inflation is problematic if

Correct Answer
verified

In which case below does a person's purchasing power from saving increase the most?

Correct Answer
verified

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Correct Answer
verified

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Correct Answer
verified

Money demand refers to

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 interest rate?

Correct Answer
verified

Which of the following statements about inflation is correct?

Correct Answer
verified

Refer to Figure 30-1. When the money supply curve shifts from MS₁ to MS₂,

Correct Answer
verified

The inflation tax

Correct Answer
verified

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Correct Answer
verified

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

Correct Answer
verified

Exam 30: Money Growth and Inflation

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Correct AnswerverifiedShow Answer

Relative-price variability is "automatic" when

Correct AnswerverifiedShow Answer

One year ago Sam purchased bonds for $100,000. He just sold them for $120,000. During the year the price level rose by 5%. If the tax rate on capital gains is 20%, how much did Sam gain in real terms?

Correct AnswerverifiedShow Answer

Confusion and inconvenience costs arise when inflation

Correct AnswerverifiedShow Answer

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The supply of money increases when

Correct AnswerverifiedShow Answer

Inflation is problematic if

Correct AnswerverifiedShow Answer

In which case below does a person's purchasing power from saving increase the most?

Correct AnswerverifiedShow Answer

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Correct AnswerverifiedShow Answer

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

Correct AnswerverifiedShow Answer

Money demand refers to

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 interest rate?

Correct AnswerverifiedShow Answer

Which of the following statements about inflation is correct?

Correct AnswerverifiedShow Answer

Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow Answer

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

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

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Refer to Figure 30-1. When the money supply curve shifts from MS₁ to MS₂,

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified