Question 1

The notion that nominal variables are heavily influenced by the quantity of money, and that money is largely irrelevant to understanding the determinants of real variables, is called:

Accepted Answer

A)   monetarism
B)   the quantity theory
C)   the Fisher effect
D)   the classical dichotomy

Question 2

Explain inflation tax. How does government collect the inflation tax and who pays this tax?

Accepted Answer

The inflation tax is the revenue the gov...

Question 3

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:

Accepted Answer

A)   -3 per cent
B)   3 per cent
C)   4 per cent
D)   11 per cent

Question 4

Unexpected inflation redistributes wealth among debtors and creditors. Who benefits - creditors or debtors? Explain.

Accepted Answer

If inflation is unexpected, cr...

Question 5

The frequent changes to the price of petrol contradicts the concept of menu costs.

Accepted Answer

A) True 
 B)False

Question 6

The inflation tax:

Accepted Answer

A)   is collected by the government every time people use money for transaction
B)   transfers wealth from government to households
C)   is paid by everyone who holds money
D)   all of the above C

Question 7

A rise in the price level means a:

Accepted Answer

A)   deflation
B)   higher value of money
C)   lower value of money
D)   lower value of goods

Question 8

Given constant velocity and output, the notion that prices rise when more money is created:

Accepted Answer

A)   is known as the natural rate theory
B)   was first explained by Milton Friedman
C)   is known as the Fisher effect of money
D)   is known as the quantity theory of money

Question 9

What are the costs of inflation?

Accepted Answer

The costs of inflation include 'shoeleather costs', being the cost of reducing your money holdings to reduce your inflation tax; 'menu costs', being the costs associated with price adjustments; the costs of resource misallocation that result from the relative-price variability induced by inflation; the costs of inflation-induced tax distortions; the costs of confusion and inconvenience; and the costs associated with the arbitrary redistributions of wealth that accompany unexpected inflation.

Question 10

An extraordinarily high rate of inflation is called:

Accepted Answer

A)   disinflation
B)   hyperinflation
C)   hyperdisinflation
D)   adverse inflation

Question 11

Because of inflation-induced changes in taxes on capital gains and interest income, higher inflation tends to discourage people from saving and lowers the rate of economic growth.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct?

Accepted Answer

A)   Economic variables measured in physical units are nominal variables, and economic variables measured in monetary units are real variables
B)   Economic variables measured in physical units are real variables, and economic variables measured in monetary units are nominal variables
C)   Economic variables measured in physical units are actual variables, and economic variables measured in monetary units are nominal variables
D)   Economic variables measured in physical units are real variables, and economic variables measured in monetary units are actual variables

Question 13

What would critics of the RBA's view believe will happen if the money supply is tightened to control inflation?

Accepted Answer

High interest rates, coupled w...

Question 14

The velocity of money measures how many times per year the typical dollar coin is used to pay for a newly produced good or service.

Accepted Answer

A) True 
 B)False

Question 15

The demand for money is:

Accepted Answer

A)   positively related to the interest rate
B)   positively related to the price level
C)   positively related to the money supply
D)   negatively related to the money supply B

Question 16

Nominal GDP measures:

Accepted Answer

A)   the dollar value of the economy's output of goods and services
B)   the total quantity of goods and services produced
C)   the total income received from producing goods and services in constant dollars
D)   all of the above

Question 17

Why does the demand for money curve slope downwards to the right?

Accepted Answer

As the interest rate decreases...

Question 18

If between when you purchase an asset and sell it, the general price level and the price of the asset both double, then you have realised a:

Accepted Answer

A)   capital gain
B)   real gain
C)   capital loss
D)   real loss

Question 19

According to the Fisher effect, an increase in the rate of inflation from 3 per cent to 4 per cent will _____.

Accepted Answer

A)   increase the nominal interest rate by 7 percentage points
B)   increase the real interest rate by 3 percentage points
C)   decrease the nominal interest rate by 3 percentage points
D)   increase the nominal interest rate by 1 percentage point

Question 20

The demand for money depends on:

Accepted Answer

A)   the interest rate
B)   the average level of prices in the economy
C)   income
D)   all of the above

Exam 30: Inflation: Its Causes and Costs

The notion that nominal variables are heavily influenced by the quantity of money, and that money is largely irrelevant to understanding the determinants of real variables, is called:

Correct Answer
verified

Explain inflation tax. How does government collect the inflation tax and who pays this tax?

Correct Answer
verified
The inflation tax is the revenue the gov...
View Answer

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:

Correct Answer
verified

Unexpected inflation redistributes wealth among debtors and creditors. Who benefits - creditors or debtors? Explain.

Correct Answer
verified
If inflation is unexpected, cr...
View Answer

The frequent changes to the price of petrol contradicts the concept of menu costs.

Correct Answer
verified

The inflation tax:

Correct Answer
verified
C

A rise in the price level means a:

Correct Answer
verified

Given constant velocity and output, the notion that prices rise when more money is created:

Correct Answer
verified

What are the costs of inflation?

An extraordinarily high rate of inflation is called:

Correct Answer
verified

Because of inflation-induced changes in taxes on capital gains and interest income, higher inflation tends to discourage people from saving and lowers the rate of economic growth.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

What would critics of the RBA's view believe will happen if the money supply is tightened to control inflation?

Correct Answer
verified
High interest rates, coupled w...
View Answer

The velocity of money measures how many times per year the typical dollar coin is used to pay for a newly produced good or service.

Correct Answer
verified

The demand for money is:

Correct Answer
verified
B

Nominal GDP measures:

Correct Answer
verified

Why does the demand for money curve slope downwards to the right?

Correct Answer
verified
As the interest rate decreases...
View Answer

If between when you purchase an asset and sell it, the general price level and the price of the asset both double, then you have realised a:

Correct Answer
verified

According to the Fisher effect, an increase in the rate of inflation from 3 per cent to 4 per cent will _____.

Correct Answer
verified

The demand for money depends on:

Correct Answer
verified

Exam 30: Inflation: Its Causes and Costs

The notion that nominal variables are heavily influenced by the quantity of money, and that money is largely irrelevant to understanding the determinants of real variables, is called:

Correct AnswerverifiedShow Answer

Explain inflation tax. How does government collect the inflation tax and who pays this tax?

Correct AnswerverifiedThe inflation tax is the revenue the gov...View AnswerShow Answer

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:

Correct AnswerverifiedShow Answer

Unexpected inflation redistributes wealth among debtors and creditors. Who benefits - creditors or debtors? Explain.

Correct AnswerverifiedIf inflation is unexpected, cr...View AnswerShow Answer

The frequent changes to the price of petrol contradicts the concept of menu costs.

Correct AnswerverifiedShow Answer

The inflation tax:

Correct AnswerverifiedC

A rise in the price level means a:

Correct AnswerverifiedShow Answer

Given constant velocity and output, the notion that prices rise when more money is created:

Correct AnswerverifiedShow Answer

What are the costs of inflation?

An extraordinarily high rate of inflation is called:

Correct AnswerverifiedShow Answer

Because of inflation-induced changes in taxes on capital gains and interest income, higher inflation tends to discourage people from saving and lowers the rate of economic growth.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

What would critics of the RBA's view believe will happen if the money supply is tightened to control inflation?

Correct AnswerverifiedHigh interest rates, coupled w...View AnswerShow Answer

The velocity of money measures how many times per year the typical dollar coin is used to pay for a newly produced good or service.

Correct AnswerverifiedShow Answer

The demand for money is:

Correct AnswerverifiedB

Nominal GDP measures:

Correct AnswerverifiedShow Answer

Why does the demand for money curve slope downwards to the right?

Correct AnswerverifiedAs the interest rate decreases...View AnswerShow Answer

If between when you purchase an asset and sell it, the general price level and the price of the asset both double, then you have realised a:

Correct AnswerverifiedShow Answer

According to the Fisher effect, an increase in the rate of inflation from 3 per cent to 4 per cent will _____.

Correct AnswerverifiedShow Answer

The demand for money depends on:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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The inflation tax is the revenue the gov...
View Answer

Correct Answer
verified

Correct Answer
verified
If inflation is unexpected, cr...
View Answer

Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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High interest rates, coupled w...
View Answer

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
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Correct Answer
verified
As the interest rate decreases...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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