Question 1

Velocity is

Accepted Answer

A)   Y/M x P)  and increases if dollars are exchanged less frequently.
B)   Y/M x P)  and increases if dollars are exchanged more frequently.
C)   P x Y) /M and increases if dollars are exchanged less frequently.
D)   P x Y) /M and increases if dollars are exchanged more frequently.E) All of the above
F) C) and D)

Question 2

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

Accepted Answer

A)   either money demand or money supply shifts right.
B)   either money demand or money supply shifts left.
C)   money demand shifts right or money supply shifts left.
D)   money demand shifts left or money supply shifts right.E) None of the above
F) A) and D)

Question 3

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 4

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A)   rises, because one unit of currency buys more ice cream cones.
B)   rises, because one unit of currency buys fewer ice cream cones.
C)   falls, because one unit of currency buys more ice cream cones.
D)   falls, because one unit of currency buys fewer ice cream cones.E) None of the above
F) All of the above

Question 5

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Accepted Answer

A)   inflation-induced tax distortion.
B)   relative-price-variability cost.
C)   shoeleather cost.
D)   menu cost.E) C) and D)
F) None of the above

Question 6

The Fisher effect says that

Accepted Answer

A)   the nominal interest rate adjusts one for one with the inflation rate.
B)   the growth rate of the money supply is negatively related to the velocity of money.
C)   real variables are heavily influenced by the monetary system.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 7

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)   excess demand for money, so the price level will rise.
B)   excess demand for money, so the price level will fall.
C)   excess supply of money, so the price level will rise.
D)   excess supply of money, so the price level will fall.E) None of the above
F) All of the above

Question 8

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Accepted Answer

A)   movement to the right along the money demand curve.
B)   movement to the left along the money demand curve.
C)   shift to the right of the money supply curve.
D)   shift to the left of the money supply curve.E) B) and C)
F) A) and B)

Question 9

Define each of the symbols and explain the meaning of M  V = P  Y.

Accepted Answer

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

Question 10

According to the classical dichotomy, when the money supply doubles which of the following doubles?

Accepted Answer

A)   the price level and nominal GDP
B)   the price level and real GDP
C)   only real GDP
D)   only the price levelE) A) and B)
F) None of the above

Question 11

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A)   menu costs
B)   inflation tax
C)   shoeleather costs
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 12

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1 to MS2? A)  an increase in the value of money B)  a decrease in the price level C)  an open-market purchase of bonds by the Federal Reserve D)  the Federal Reserve sells bonds." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   the Federal Reserve sells bonds.E) A) and C)
F) C) and D)

Question 13

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Accepted Answer

A)   nominal income and real income increased.
B)   nominal income increased, but their real income decreased.
C)   nominal income and real income decreased.
D)   nominal income decreased, but their real income increased.E) All of the above
F) B) and D)

Question 14

Printing money to finance government expenditures

Accepted Answer

A)   causes the value of money to rise.
B)   imposes a tax on everyone who holds money.
C)   is the principal method by which the U.S. government finances its expenditures.
D)   causes prices to fall.E) A) and B)
F) B) and C)

Question 15

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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.E) B) and C)
F) C) and D)

Question 18

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   1.5 percent.
B)   2.5 percent.
C)   5.0 percent.
D)   4.5 percent.E) A) and B)
F) A) and C)

Question 19

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded decreases.
D)   decreases, so the quantity of money demanded increases.E) All of the above
F) B) and C)

Question 20

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Exam 17: Money Growth and Inflation

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings. Income ta...View AnswerShow Answer

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

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The quantity equation is M x V = P x Y.

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Define each of the symbols and explain the meaning of M V = P Y.

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

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

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You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

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Velocity is

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Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

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When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

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According to the classical dichotomy, when the money supply doubles which of the following doubles?

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Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fisher effect says that

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Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

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Printing money to finance government expenditures

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People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Correct AnswerverifiedShow Answer

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Inflation discourages savings. Income ta...
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M is the quantity of money, V is the vel...
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Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

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