Question 1

If P = 4 and Y = 450,then which of the following pairs of values are possible?

Accepted Answer

A)   M = 800,V = 4
B)   M = 600,V =3
C)   M = 400,V =2
D)   M = 200,V =1

Question 2

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.

Question 3

As the price level falls,the value of money falls.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that in some tax year you earned a nominal interest rate of 4 percent.During the time you held these funds inflation was 1 percent.You compute that you made a real after-tax interest rate of 2 percent.What was your tax rate?

Accepted Answer

A)   50 percent
B)   33.3 percent
C)   25 percent
D)   None of the above are correct.

Question 5

When inflation rises,the nominal interest rate

Accepted Answer

A)   rises,and people desire to hold more money.
B)   rises,and people desire to hold less money.
C)   falls,and people desire to hold more money.
D)   falls,and people desire to hold less money

Question 6

If when the money supply changes,real output and velocity do not change,then a 2 percent increase in the money supply

Accepted Answer

A)   decreases the price level by 2 percent.
B)   decreases the price level by less than 2 percent.
C)   increases the price level by less than 2 percent.
D)   increases the price level by 2 percent.

Question 7

Given a nominal interest rate of 6 percent,in which of the following cases would you earn the lowest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 4 percent; the tax rate is 5 percent.
B)   Inflation is 3 percent; the tax rate is 20 percent.
C)   Inflation is 2 percent; the tax rate is 30 percent.
D)   The after-tax real interest rate is the same for all of the above.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Indexing the tax system to take into account the effects of inflation would by itself

Accepted Answer

A)   mean that only real interest earnings are taxed.
B)   mean an end to taxing capital gains.
C)   mean an increase in average tax rates.
D)   All of the above are correct.

Question 10

The payments you make on your automobile loan are given in terms of dollars.As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)   The dollar amount you pay is a nominal value.The number of goods you give up is a real value.
B)   The dollar amount you pay is a real value.The number of goods you give up is a nominal value.
C)   Both the dollar amount you pay and the goods you give up are nominal values.
D)   Both the dollar amount you pay and the goods you give up are real values.

Question 11

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.

Question 12

The price level rises if either

Accepted Answer

A)   money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a rise in the value of money.
B)   money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a fall in the value of money.
C)   money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a rise in the value of money.
D)   money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

Question 13

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)   Austria in the 1920's.
B)   Hungary in the 1920's.
C)   Poland in the 1920's.
D)   All of the above are correct.

Question 14

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400.The inflation rate over the year was 50 percent.The tax rate on nominal capital gains is 50 percent.What was the tax on Kaitlyn's capital gain?

Accepted Answer

A)   $50
B)   $75
C)   $100
D)   $200

Question 15

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

Accepted Answer

A)   both higher inflation and higher nominal interest rates.
B)   a higher inflation rate,but not higher nominal interest rates.
C)   a higher nominal interest rate,but not higher inflation.
D)   neither a higher inflation rate nor a higher nominal interest rate.

Question 16

The supply of money is determined by

Accepted Answer

A)   the price level.
B)   the Treasury and Congressional Budget Office.
C)   the Federal Reserve System.
D)   the demand for money.

Question 17

During the last tax year you lent money at a nominal rate of 6 percent.Actual inflation was 1.5 percent,but people had been expecting 1 percent .This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.

Question 18

Market economies rely on which of the following to allocate scarce resources?

Accepted Answer

A)   government
B)   consumers
C)   relative prices
D)   real interest rates

Question 19

For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 22: Money Growth and Inflation

Suppose that in some tax year you earned a nominal interest rate of 4 percent.During the time you held these funds inflation was 1 percent.You compute that you made a real after-tax interest rate of 2 percent.What was your tax rate?

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Market economies rely on which of the following to allocate scarce resources?

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As the price level falls,the value of money falls.

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Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

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Given a nominal interest rate of 6 percent,in which of the following cases would you earn the lowest after-tax real rate of interest?

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If P = 4 and Y = 450,then which of the following pairs of values are possible?

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The quantity theory of money

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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

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If when the money supply changes,real output and velocity do not change,then a 2 percent increase in the money supply

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The price level rises if either

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

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During the last tax year you lent money at a nominal rate of 6 percent.Actual inflation was 1.5 percent,but people had been expecting 1 percent .This difference between actual and expected inflation

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Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400.The inflation rate over the year was 50 percent.The tax rate on nominal capital gains is 50 percent.What was the tax on Kaitlyn's capital gain?

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The payments you make on your automobile loan are given in terms of dollars.As prices rise you notice you give up fewer goods to make your payments.

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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

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time.Other things the same a higher money supply growth would be associated with

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The supply of money is determined by

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For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.

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Indexing the tax system to take into account the effects of inflation would by itself

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When inflation rises,the nominal interest rate

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