Question 1

Wealth is redistributed from debtors to creditors when inflation is

Accepted Answer

A)  high, whether it is expected or not.
B)  low, whether it is expected or not.
C)  unexpectedly high.
D)  unexpectedly low.E) None of the above
F) B) and C)

Question 2

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

Question 3

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy's real GDP amounts to A) 5,000. B) 7,500. C) 10,000. D) 15,000." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy's real GDP amounts to

Accepted Answer

A)  5,000.
B)  7,500.
C)  10,000.
D)  15,000.E) B) and C)
F) None of the above

Question 4

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 5

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is correct? Inflation

Accepted Answer

A)  impedes financial markets in their role of allocating resources.
B)  reduces the purchasing power of the average consumer.
C)  generally increases after-tax real interest rates.
D)  is most costly when anticipated.E) B) and D)
F) B) and C)

Question 7

Inflation can be measured by the

Accepted Answer

A)  change in the consumer price index.
B)  percentage change in the consumer price index.
C)  percentage change in the price of a specific commodity.
D)  change in the price of a specific commodity.E) All of the above
F) A) and D)

Question 8

An excess supply of money is eliminated by a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Question 9

If inflation is higher than what was expected,

Accepted Answer

A)  creditors receive a lower real interest rate than they had anticipated.
B)  creditors pay a lower real interest rate than they had anticipated.
C)  debtors receive a higher real interest rate than they had anticipated.
D)  debtors pay a higher real interest rate than they had anticipated.E) A) and D)
F) All of the above

Question 10

Monetary neutrality implies that an increase in the quantity of money will

Accepted Answer

A)  increase employment.
B)  increase the price level.
C)  increase the incentive to save.
D)  not increase any of the above.E) A) and D)
F) All of the above

Question 11

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)  4.3 percent
B)  3.1 percent
C)  1.8 percent
D)  1.2 percentE) None of the above
F) A) and D)

Question 12

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

Question 13

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

Accepted Answer

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

Question 14

You put money into an account and earn a real interest rate of 6 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)  4.8 percent
B)  3.2 percent
C)  2.8 percent
D)  None of the above is correct.E) All of the above
F) C) and D)

Question 15

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Accepted Answer

A)  either a rise in output or a rise in velocity.
B)  either a rise in output or a fall in velocity.
C)  either a fall in output or a rise in velocity.
D)  either a fall in output or a fall in velocity.E) A) and D)
F) B) and D)

Question 16

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Accepted Answer

A)  real output only.
B)  nominal output only.
C)  the price level only.
D)  both the price level and nominal output.E) B) and C)
F) None of the above

Question 17

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

Question 18

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

Accepted Answer

A) True 
 B)False

Question 19

Other things the same, an increase in velocity means that

Accepted Answer

A)  the rate at which money changes hands falls, so the price level rises.
B)  the rate at which money changes hands falls, so the price level falls.
C)  the rate at which money changes hands rises, so the price level rises.
D)  the rate at which money changes hands rises, so the price level falls.E) A) and C)
F) A) and B)

Question 20

If the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

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

Correct Answer
verified

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Correct Answer
verified

Other things the same, an increase in velocity means that

Correct Answer
verified

Wealth is redistributed from debtors to creditors when inflation is

Correct Answer
verified

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

Correct Answer
verified

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct Answer
verified

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Correct Answer
verified

Correct Answer
verified

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

Correct Answer
verified

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Correct Answer
verified

Which of the following is correct? Inflation

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 the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct Answer
verified

An excess supply of money is eliminated by a decrease in the value of money.

Correct Answer
verified

Monetary neutrality implies that an increase in the quantity of money will

Correct Answer
verified

Inflation can be measured by the

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

You put money into an account and earn a real interest rate of 6 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

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 Answer
verified

If inflation is higher than what was expected,

Correct Answer
verified

Exam 17: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, an increase in the price level shifts money demand to the right.

Correct AnswerverifiedShow Answer

Other things the same, an increase in velocity means that

Correct AnswerverifiedShow Answer

Wealth is redistributed from debtors to creditors when inflation is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct AnswerverifiedShow Answer

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the 1990s, U.S. prices rose at about the same rate as in the 1970s.

Correct AnswerverifiedShow Answer

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Correct AnswerverifiedShow Answer

Which of the following is correct? Inflation

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 the Fed were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Correct AnswerverifiedShow Answer

An excess supply of money is eliminated by a decrease in the value of money.

Correct AnswerverifiedShow Answer

Monetary neutrality implies that an increase in the quantity of money will

Correct AnswerverifiedShow Answer

Inflation can be measured by the

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

You put money into an account and earn a real interest rate of 6 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

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

If inflation is higher than what was expected,

Correct AnswerverifiedShow Answer

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