Question 1

Over the past 70 years, the overall price level in the U.S. has experienced a(n)

Accepted Answer

A)   4-fold increase.
B)   8-fold increase.
C)   12-fold increase.
D)   16-fold increase.

Question 2

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

Accepted Answer

A)   Prices rose at an average annual rate of about 4 percent over the last 70 years.
B)   There was about a 16-fold increase in the price level over the last 70 years.
C)   Inflation in the 1970s was below the average over the last 70 years.
D)   The United States has experienced periods of deflation. C

Question 3

Figure 12-1
 2 and the value of money is 2, then there is an excess A)  demand for money that is represented by the distance between points A and C. B)  demand for money that is represented by the distance between points A and B. C)  supply of money that is represented by the distance between points A and C. D)  supply of money that is represented by the distance between points A and B. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-1. If the money supply is MS2 and the value of money is 2, then there is an excess

Accepted Answer

A)   demand for money that is represented by the distance between points A and C.
B)   demand for money that is represented by the distance between points A and B.
C)   supply of money that is represented by the distance between points A and C.
D)   supply of money that is represented by the distance between points A and B.

Question 4

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Accepted Answer

A)   quantity theory of money.
B)   price-index theory of money.
C)   theory of hyperinflation.
D)   disequilibrium theory of money and inflation.

Question 5

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Accepted Answer

A)   60 percent.
B)   80 percent.
C)   220 percent.
D)   24,000 percent.

Question 6

Over the last 70 years, the average annual U.S. inflation rate was about

Accepted Answer

A)   2 percent, implying that prices have increased 10-fold.
B)   4 percent, implying that prices have increased 10-fold.
C)   2 percent, implying that prices have increased 16-fold.
D)   4 percent, implying that prices increased about 16-fold.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Accepted Answer

A)   a real interest rate of 2.5 percent and an inflation rate of 2 percent
B)   a real interest rate of 4 percent and an inflation rate of 11 percent
C)   a real interest rate of 6 percent and an inflation rate of 1 percent
D)   a real interest rate of 5.5 percent and an inflation rate of 3 percent

Question 9

In the U.S., from the early 1980s through the early 1990s,

Accepted Answer

A)   both inflation and nominal interest rates rose.
B)   both inflation and nominal interest rates fell.
C)   the inflation rate fell and the nominal interest rate rose.
D)   the inflation rate rose and the nominal interest rate fell.

Question 10

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 11

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Accepted Answer

A) True 
 B)False

Question 12

Inflation can be measured by the

Accepted Answer

A)   change in the consumer price index.
B)   percentage change in the consumer price index.
C)   percentage change in the price of a specific commodity.
D)   change in the price of a specific commodity.

Question 13

Banks advertise

Accepted Answer

A)   the real interest rate, which is how fast the dollar value of savings grows.
B)   the real interest rate, which is how fast the purchasing power of savings grows.
C)   the nominal interest rate, which is how fast the dollar value of savings grows.
D)   the nominal interest rate, which is how fast the purchasing power of savings grows.

Question 14

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Accepted Answer

A)   increases the real interest rate and the after-tax real rate of interest.
B)   increases the real interest rate and the after-tax real rate of interest
C)   does not change the real interest rate but raises the after tax real rate of interest.
D)   does not change the real interest rate but reduces the after-tax real rate of interest.

Question 15

The United States has never had deflation.

Accepted Answer

A) True 
 B)False

Question 16

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Accepted Answer

A)   lenders and people holding a lot of currency
B)   lenders but not people holding a lot of currency
C)   people holding a lot of currency but not lenders
D)   neither lenders nor people holding a lot of currency

Question 17

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Accepted Answer

A)   will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
B)   will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.
C)   will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation turns out to be higher than 2 percent.
D)   will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent. B

Question 18

According to the classical dichotomy, which of the following is affected by monetary factors?

Accepted Answer

A)   nominal wages
B)   the price level
C)   nominal GDP
D)   All of the above are correct.

Question 19

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

Accepted Answer

A)   nominal GDP and nominal interest rates
B)   real wages and real GDP
C)   the price level and nominal GDP
D)   None of the above is correct. B

Question 20

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

Accepted Answer

A)   10 percent
B)   7 percent
C)   3 percent
D)   2.5 percent

Exam 12: Money Growth and Inflation

Over the past 70 years, the overall price level in the U.S. has experienced a(n)

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

Figure 12-1 -Refer to Figure 12-1. If the money supply is MS2 and the value of money is 2, then there is an excess

Correct AnswerverifiedShow Answer

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Correct AnswerverifiedShow Answer

In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached

Correct AnswerverifiedShow Answer

Over the last 70 years, the average annual U.S. inflation rate was about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent?

Correct AnswerverifiedShow Answer

In the U.S., from the early 1980s through the early 1990s,

Correct AnswerverifiedShow Answer

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Correct AnswerverifiedShow Answer

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

Correct AnswerverifiedShow Answer

Inflation can be measured by the

Correct AnswerverifiedShow Answer

Banks advertise

Correct AnswerverifiedShow Answer

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

Correct AnswerverifiedShow Answer

The United States has never had deflation.

Correct AnswerverifiedShow Answer

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Correct AnswerverifiedShow Answer

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

Correct AnswerverifiedB

According to the classical dichotomy, which of the following is affected by monetary factors?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

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C

Figure 12-1 -Refer to Figure 12-1. If the money supply is MS₂ and the value of money is 2, then there is an excess

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B

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B

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