Question 1

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

Open marke...

Question 2

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Accepted Answer

M x V = P ...

Question 3

The inflation tax

Accepted Answer

A)   is an alternative to income taxes and government borrowing.
B)   taxes most those who hold the most money.
C)   is the revenue created when the government prints money.
D)   All of the above are correct.

Question 4

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 5

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)   nominal wages
B)   unemployment
C)   real GDP
D)   All of the above are correct.

Question 7

If the value of a dollar falls, then the quantity of money demanded

Accepted Answer

A)   rises, meaning people want to hold more of their wealth in a liquid form.
B)   rises, meaning people desire to work more so their income rises.
C)   falls, meaning people want to hold less of their wealth in a liquid form.
D)   falls, meaning people want to work less so their income falls.

Question 8

When inflation causes relative-price variability,

Accepted Answer

A)   consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
B)   consumer decisions are distorted, but markets are still able to efficiently allocate factors of production.
C)   consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired.
D)   consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.

Question 9

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 10

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)   nominal GDP would be greater than the money supply.

Question 11

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 12

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Accepted Answer

A)   The price level and velocity are both 8.
B)   The price level is 2 and velocity is 8.
C)   The price level and velocity are both 4.
D)   The price level is 4 and velocity is 8.

Question 13

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Accepted Answer

A)   nominal and real GDP would fall by 7 percent.
B)   nominal GDP would fall by 7 percent; real GDP would be unchanged.
C)   nominal GDP would be unchanged; real GDP would fall by 7 percent.
D)   neither nominal GDP nor real GDP would change.

Question 16

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Accepted Answer

A) True 
 B)False

Question 17

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)   1/P represents the value of money measured in terms of goods and services.
B)   P can be regarded as the "overall price level."
C)   an increase in the value of money is associated with a decrease in P.
D)   All of the above are correct.

Question 18

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Accepted Answer

A) True 
 B)False

Question 19

Money demand depends on

Accepted Answer

A)   the price level and the interest rate.
B)   the price level but not the interest rate.
C)   the interest rate but not the price level.
D)   neither the price level nor the interest rate.

Question 20

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

Menu costs are the costs of ch...

Exam 30: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

Correct AnswerverifiedShow Answer

Shoeleather costs and menu costs are both costs of anticipated inflation.

Correct AnswerverifiedShow Answer

If a country experienced deflation, then

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What are menu costs and why does high inflation increase menu costs?

Correct AnswerverifiedMenu costs are the costs of ch...View AnswerShow Answer

If P denotes the price of goods and services measured in terms of money, then

Correct AnswerverifiedShow Answer

If the value of a dollar falls, then the quantity of money demanded

Correct AnswerverifiedShow Answer

The quantity equation is expressed as _____. The rate at which money changes hands is known as _____.

Correct AnswerverifiedM x V = P ...View AnswerShow Answer

Money demand depends on

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts. ...View AnswerShow Answer

Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent.

Correct AnswerverifiedShow Answer

Menu costs refers to

Correct AnswerverifiedShow Answer

The inflation tax

Correct AnswerverifiedShow Answer

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Correct AnswerverifiedShow Answer

When inflation causes relative-price variability,

Correct AnswerverifiedShow Answer

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Correct AnswerverifiedOpen marke...View AnswerShow Answer

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

Correct AnswerverifiedShow Answer

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Menu costs are the costs of ch...
View Answer

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The quantity equation is expressed as _. The rate at which money changes hands is known as _.

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M x V = P ...
View Answer

Correct Answer
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Most had large nominal debts. ...
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Open marke...
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Correct Answer
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