Question 1

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 2

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.

Question 3

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

Accepted Answer

A)  supply of money, causing people to spend more.
B)  supply of money, causing people to spend less.
C)  demand for money, causing people to spend more.
D)  demand for money, causing people to spend less.

Question 4

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that

Accepted Answer

A)  velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P.
B)  velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.
C)  velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P.
D)  velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.

Question 5

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who save than for those who borrow.
B)  for those who hold a little money than for those who hold a lot of money.
C)  for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
D)  for savers in low income tax brackets than for savers in high income tax brackets.

Question 6

Real GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 7

In order to maintain stable prices, a central bank must

Accepted Answer

A)  maintain low interest rates.
B)  keep unemployment low.
C)  tightly control the money supply.
D)  sell indexed bonds.

Question 8

You put money in the bank. The increase in the dollar value of your savings

Accepted Answer

A)  and the change in the number of goods you can buy with your savings are both nominal variables.
B)  and the change in the number of goods you can buy with your savings are both real variables.
C)  is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.
D)  is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

Question 9

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 10

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

Accepted Answer

A)  28.00 percent
B)  36.25 percent
C)  43.75 percent
D)  67.50 percent

Question 11

The Fisher effect

Accepted Answer

A)  says the government can generate revenue by printing money.
B)  says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)  explains how higher money supply growth leads to higher inflation.
D)  explains how prices adjust to obtain equilibrium in the money market.

Question 12

Most economists believe that monetary neutrality provides

Accepted Answer

A)  a good description of both the long run and the short run.
B)  a good description of neither the long run nor the short run.
C)  a good description of the short run, but not the long run.
D)  a good description of the long run, but not the short run.

Question 13

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns 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.

Question 14

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 policy

Question 15

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 the nominal interest rate by the same number of percentage points.
B)  nominal interest rates but by less than the percentage point increase in the inflation rate.
C)  the inflation rate but not the nominal interest.
D)  neither the inflation rate nor the nominal interest rate.

Question 16

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 17

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)  the value of money.
B)  real interest rates.
C)  nominal interest rates.
D)  the money supply.

Question 18

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

Accepted Answer

A)  11.5 percent
B)  7 percent
C)  4.5 percent
D)  2.5 percent

Question 19

If inflation is lower 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.

Question 20

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t...

Exam 17: Money Growth and Inflation

High and unexpected inflation has a greater cost

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If inflation is lower than what was expected,

Correct AnswerverifiedShow Answer

Most economists believe that monetary neutrality provides

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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.

Correct AnswerverifiedShow Answer

The quantity equation is M x V = P x Y.

Correct AnswerverifiedShow Answer

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

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 a country experienced deflation, then

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If money demand shifts right, the price level falls.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Correct AnswerverifiedShow Answer

The Fisher effect

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In order to maintain stable prices, a central bank must

Correct AnswerverifiedShow Answer

Real GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You put money in the bank. The increase in the dollar value of your savings

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

Correct AnswerverifiedShow Answer

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

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Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically, the government in countries t...View AnswerShow Answer

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Typically, the government in countries t...
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