Question 1

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)   None of the above is necessarily correct.E) A) and D)
F) All of the above

Question 2

Inflation distorts relative prices.What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 3

Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds,the...

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Money demand depends on

Accepted Answer

A)   the price level and the interest rate.
B)   the price level but not the interest rate.
C)   the interest rate but not the price level.
D)   neither the price level nor the interest rate.E) A) and C)
F) B) and D)

Question 6

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) B) and D)

Question 7

You find that to attract a sufficient number of workers you have to pay them more dollars.Given the price of your output you determine you are paying your workers more in goods than before.Which of the following has risen?

Accepted Answer

A)   The real and nominal value of the wages you pay.
B)   The real but not the nominal value of wages you pay.
C)   The nominal but not the real value of the wages you pay.
D)   Neither the real nor the nominal value of the wages you pay.E) A) and D)
F) C) and D)

Question 8

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)   the nominal wage divided by the price level
B)   real output
C)   real interest rates
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 9

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 C)
F) All of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Sam deposits money into an account with a nominal interest rate of 4 percent.He expects inflation to be 1.5 percent.His tax rate is 20 percent.Sam's after-tax real rate of interest

Accepted Answer

A)   will be 2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
B)   will be 2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.
C)   will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.
D)   will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.E) All of the above
F) A) and D)

Question 12

If the money supply increased by 10% and at the same time velocity decreased by 10%,then according to the quantity equation there would be no change in the price level.

Accepted Answer

A) True 
 B)False

Question 13

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 14

Economists agree that

Accepted Answer

A)   neither high inflation nor moderate inflation is very costly.
B)   both high and moderate inflation are quite costly.
C)   high inflation is costly,but they disagree about the costs of moderate inflation.
D)   moderate inflation is as costly as high inflation.E) None of the above
F) B) and D)

Question 15

According to monetary neutrality and the Fisher effect,an increase in the money supply growth rate eventually increases

Accepted Answer

A)   inflation,nominal interest rates,and real interest rates.
B)   inflation and nominal interest rates,but does not change real interest rates.
C)   inflation and real interest rates,but does not change nominal interest rates.
D)   neither inflation,nominal interest rates,or real interest rates.E) A) and B)
F) A) and C)

Question 16

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)   affect both nominal and real variables.
B)   affect neither nominal nor real variables.
C)   affect nominal variables,but not real variables.
D)   do not affect nominal variables,but do affect real variables.E) B) and D)
F) A) and D)

Question 17

The inflation tax falls mostly heavily on

Accepted Answer

A)   those who hold a lot of currency and accounts for a large share of U.S.government revenue.
B)   those who hold a lot of currency but accounts for a small share of U.S.government revenue.
C)   those who hold little currency and accounts for a large share of U.S.government revenue.
D)   those who hold little currency but accounts for a small share of U.S.government revenue.E) B) and D)
F) A) and C)

Question 18

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 costs.E) A) and C)
F) A) and B)

Question 19

On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

Accepted Answer

A)   and a price index are both real variables.
B)   and a price index are both nominal variables.
C)   are real variables,and a price index is a nominal variable.
D)   are nominal variables,and a price index is a real variableE) C) and D)
F) A) and B)

Question 20

When inflation causes relative-price variability,

Accepted Answer

A)   consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
B)   consumer decisions are distorted,but markets are still able to efficiently allocate factors of production.
C)   consumer decisions are not distorted,but the ability of markets to efficiently allocate factors of production is impaired.
D)   consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.E) All of the above
F) A) and B)

Exam 22: Money Growth and Inflation

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

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According to monetary neutrality and the Fisher effect,an increase in the money supply growth rate eventually increases

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The inflation tax

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The classical dichotomy argues that changes in the money supply

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Economists agree that

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

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You find that to attract a sufficient number of workers you have to pay them more dollars.Given the price of your output you determine you are paying your workers more in goods than before.Which of the following has risen?

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If the money supply increased by 10% and at the same time velocity decreased by 10%,then according to the quantity equation there would be no change in the price level.

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Which of the following can a country increase in the long run by increasing its money growth rate?

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

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On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

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Sam deposits money into an account with a nominal interest rate of 4 percent.He expects inflation to be 1.5 percent.His tax rate is 20 percent.Sam's after-tax real rate of interest

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Inflation distorts relative prices.What does this mean and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the Fed sells government bonds.Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds,the...View AnswerShow Answer

Money demand depends on

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If a country experienced deflation,then

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When inflation causes relative-price variability,

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Hyperinflations are associated with governments printing money to finance expenditures.

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The inflation tax falls mostly heavily on

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Relative prices are the value of one goo...
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When the Fed sells government bonds,the...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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