Question 1

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Accepted Answer

A)   Her real and nominal salary have risen.
B)   Her real and nominal salary have fallen.
C)   Her real salary has risen and her nominal salary has fallen.
D)   Her real salary has fallen and her nominal salary has risen.E) None of the above
F) B) and D)

Question 2

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 3

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)   1/P represents the value of money measured in terms of goods and services.
B)   P can be regarded as the "overall price level."
C)   an increase in the value of money is associated with a decrease in P.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 4

Which of the following statements about U.S. inflation is not correct?

Accepted Answer

A)   Low inflation was viewed as a triumph of President Carter's economic policy.
B)   There were long periods in the nineteenth century during which prices fell.
C)   The U.S. public has viewed inflation rates of even 7 percent as a major economic problem.
D)   The U.S. inflation rate has varied over time, but international data show even more variation.E) None of the above
F) A) and D)

Question 5

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

Accepted Answer

A)   People who held money would feel poorer.
B)   Prices would rise.
C)   People who had lent money at a fixed interest rate would feel poorer.
D)   All of the above are correct.E) A) and C)
F) A) and B)

Question 6

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Accepted Answer

A)   both a nominal gain and a real gain, and you paid taxes on the nominal gain.
B)   both a nominal gain and a real gain, and you paid taxes only on the real gain.
C)   a nominal gain, but no real gain, and you paid taxes on the nominal gain.
D)   a nominal gain, but no real gain, and you paid no taxes on the transaction.E) None of the above
F) A) and B)

Question 7

The quantity theory of money

Accepted Answer

A)   is a fairly recent addition to economic theory.
B)   can explain both moderate inflation and hyperinflation.
C)   argues that inflation is caused by too little money in the economy.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 8

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Accepted Answer

A)   inflation-induced tax distortion.
B)   relative-price-variability cost.
C)   shoeleather cost.
D)   menu cost.E) A) and B)
F) A) and C)

Question 9

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) A) and D)

Question 10

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Accepted Answer

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

Question 11

When the money market is drawn with the value of money on the vertical axis, the price level increases if

Accepted Answer

A)   money demand shifts right and decreases if money supply shifts right.
B)   money demand shifts right and decreases if money supply shifts left.
C)   money demand shifts left and decreases if money supply shifts right.
D)   money demand shifts left and decreases if money supply shifts left.E) A) and B)
F) None of the above

Question 12

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

Accepted Answer

A) True 
 B)False

Question 13

According to the principle of monetary neutrality, a decrease in the money supply will not change

Accepted Answer

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

Question 14

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 15

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent, what is the real interest rate?

Accepted Answer

A)   7 percent
B)   5 percent
C)   3 percent
D)   3/5 percentE) A) and C)
F) A) and B)

Question 16

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 B)
F) None of the above

Question 17

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Accepted Answer

A) True 
 B)False

Question 18

When inflation rises, firms make

Accepted Answer

A)   more frequent price changes. This raises their menu costs.
B)   more frequent price changes. This reduces their menu costs.
C)   less frequent price changes. This raises their menu costs.
D)   less frequent price changes. This reduces their menu costs.E) All of the above
F) None of the above

Question 19

People can reduce the inflation tax by

Accepted Answer

A)   reducing savings.
B)   increasing deductions on their income tax.
C)   reducing cash holdings.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 20

Which of the following is accurate?

Accepted Answer

A)   Monetary policy is neutral in both the short run and the long run.
B)   Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
C)   Monetary policy has profound effects on real variables in both the short run and the long run.
D)   Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.E) B) and D)
F) A) and D)

Exam 12: Money Growth and Inflation

When inflation rises, firms make

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People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

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According to the principle of monetary neutrality, a decrease in the money supply will not change

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You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following is not influenced by monetary factors?

Correct AnswerverifiedShow Answer

A person received 4% nominal interest. The inflation rate was -2% and the tax rate was 25%. This person received an after-tax real interest rate of 5%.

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When the money market is drawn with the value of money on the vertical axis, the price level increases if

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Which of the following statements about U.S. inflation is not correct?

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

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List and define any two of the costs of high inflation.

Correct AnswerverifiedThe costs include:Shoeleather costs: th...View AnswerShow Answer

If P denotes the price of goods and services measured in terms of money, then

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The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

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The quantity theory of money

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People can reduce the inflation tax by

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Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

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Which of the following is accurate?

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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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An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent, what is the real interest rate?

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The costs include:
Shoeleather costs: th...
View Answer

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