Question 1

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 2

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid 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 3

Define each of the symbols and explain the meaning of

Accepted Answer

M is the quantity of money, V is the vel...

Question 4

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

Accepted Answer

A)   $4,000.
B)   $2,250.
C)   $250.
D)   $36,000.

Question 5

Menu costs refers to

Accepted Answer

A)   resources used by people to maintain lower money holdings when inflation is high.
B)   resources used to price shop during times of high inflation.
C)   the distortion in incentives created by inflation when taxes do not adjust for inflation.
D)   the cost of more frequent price changes induced by higher inflation.

Question 6

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Accepted Answer

Both the nominal and real valu...

Question 7

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Accepted Answer

rapid money supply g...

Question 8

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 9

The increase in the overall level of prices is known as .

Accepted Answer

The answer of The increase in the overall level of...

Question 10

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Accepted Answer

A)   The country has high money supply growth.
B)   Inflation is acting like a tax on everyone who holds money.
C)   The government is printing money to finance its expenditures.
D)   All of the above are correct.

Question 11

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Accepted Answer

The answer of You hear an economist state the following:...

Question 12

When the money market is drawn with the value of money on the vertical axis,

Accepted Answer

A)   money demand slopes upward and money supply is horizontal.
B)   money demand slopes downward and money supply is horizontal.
C)   money demand slopes upward and money supply is vertical.
D)   money demand slopes downward and money supply is vertical.

Question 13

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Accepted Answer

A)   .031-.20) 
B)   .041 -.20) 
C)   .041 - .20)  - .01
D)   None of the above is correct.

Question 14

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

Accepted Answer

The costs include:
Shoeleather costs: th...

Question 15

The velocity of money is

Accepted Answer

A)   the rate at which the Fed puts money into the economy.
B)   the same thing as the long-term growth rate of the money supply.
C)   the money supply divided by nominal GDP.
D)   the average number of times per year a dollar is spent.

Question 16

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

Accepted Answer

The answer of Your grandfather tells you that his annual...

Question 17

When deciding how much to save, people care most about

Accepted Answer

A)   after-tax nominal interest rates.
B)   after-tax real interest rates.
C)   before-tax real interest rates.
D)   before-tax nominal interest rates.

Question 18

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   2.2 percent
B)   2.7 percent
C)   11.7 percent
D)   7.7 percent

Question 19

In United States history there were long periods when most prices fell.

Accepted Answer

A) True 
 B)False

Question 20

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Exam 12: Money Growth and Inflation

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Correct Answer
verified

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

Correct Answer
verified

Correct Answer
verified

Menu costs refers to

Correct Answer
verified

When deciding how much to save, people care most about

Correct Answer
verified

The inflation rate is measured as the percentage change in a price index.

Correct Answer
verified

Define each of the symbols and explain the meaning of

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis,

Correct Answer
verified

The increase in the overall level of prices is known as .

Correct Answer
verified

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Correct Answer
verified

Inflation can be measured by the

Correct Answer
verified

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Correct Answer
verified

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

Correct Answer
verified

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Correct Answer
verified

In the long run inflation is explained by . For countries that had hyperinflation this source of inflation arose primarily because the government .

Correct Answer
verified
rapid money supply g...
View Answer

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Correct Answer
verified
Both the nominal and real valu...
View Answer

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

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

The velocity of money is

Correct Answer
verified

In United States history there were long periods when most prices fell.

Correct Answer
verified

Exam 12: Money Growth and Inflation

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Menu costs refers to

Correct AnswerverifiedShow Answer

When deciding how much to save, people care most about

Correct AnswerverifiedShow Answer

The inflation rate is measured as the percentage change in a price index.

Correct AnswerverifiedShow Answer

Define each of the symbols and explain the meaning of

Correct AnswerverifiedM is the quantity of money, V is the vel...View AnswerShow Answer

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after- tax real return computed?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,

Correct AnswerverifiedShow Answer

The increase in the overall level of prices is known as .

Correct AnswerverifiedShow Answer

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Correct AnswerverifiedShow Answer

Inflation can be measured by the

Correct AnswerverifiedShow Answer

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

Correct AnswerverifiedShow Answer

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Correct AnswerverifiedShow Answer

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Correct AnswerverifiedShow Answer

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Correct Answerverifiedrapid money supply g...View AnswerShow Answer

An economy produces two goods, x and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?

Correct AnswerverifiedBoth the nominal and real valu...View AnswerShow Answer

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

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

The velocity of money is

Correct AnswerverifiedShow Answer

In United States history there were long periods when most prices fell.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

Correct Answer
verified

Correct Answer
verified

In the long run inflation is explained by . For countries that had hyperinflation this source of inflation arose primarily because the government .

Correct Answer
verified
rapid money supply g...
View Answer

Correct Answer
verified
Both the nominal and real valu...
View Answer

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

Correct Answer
verified

Correct Answer
verified