Question 1

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  decrease, which encourages savings.
B)  decrease, which discourages savings.
C)  increase, which encourages savings.
D)  increase, which discourages savings.E) A) and B)
F) A) and D)

Question 3

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

Accepted Answer

A)  The real and nominal value of the wages you pay.
B)  The real but not the nominal value of wages you pay.
C)  The nominal but not the real value of the wages you pay.
D)  Neither the real nor the nominal value of the wages you pay.E) B) and D)
F) C) and D)

Question 4

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

Question 5

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Accepted Answer

A) True 
 B)False

Question 6

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 7

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Accepted Answer

A)  The dollar price of jeans and the relative price of jeans are both nominal variables.
B)  The dollar price of jeans and the relative price of jeans are both real variables.
C)  The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable.
D)  The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable.E) All of the above
F) A) and C)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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) B) and C)
F) All of the above

Question 10

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Accepted Answer

A)  nominal wage is higher.
B)  nominal wage is lower.
C)  real wage is higher.
D)  real wage is lower.E) None of the above
F) A) and B)

Question 11

If M = 4,000, P = 1.5, and Y= 6,000, what is velocity?

Accepted Answer

A)  2.25
B)  3.00
C)  6.50
D)  None of the above is correct.E) B) and C)
F) None of the above

Question 12

When prices are falling, economists say that there is

Accepted Answer

A)  disinflation.
B)  deflation.
C)  a contraction.
D)  an inverted inflation.E) A) and C)
F) B) and C)

Question 13

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars.
B)  $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars.
C)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)  20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.E) B) and C)
F) None of the above

Question 14

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) All of the above
F) C) and D)

Question 15

The classical dichotomy argues that changes in the money supply

Accepted Answer

A)  affect both nominal and real variables.
B)  affect neither nominal nor real variables.
C)  affect nominal variables, but not real variables.
D)  do not affect nominal variables, but do affect real variables.E) A) and B)
F) A) and C)

Question 16

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in...

Question 17

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Accepted Answer

A)  the quantity theory and evidence from four hyperinflations during the 1920's
B)  the quantity theory but not evidence from four hyperinflations during the 1920's
C)  evidence from four hyperinflations during the 1920's but not the quantity theory
D)  neither the quantity theory nor evidence from four hyperinflation during the 1920'sE) A) and B)
F) B) and C)

Question 18

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 19

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Accepted Answer

A)  the price level would fall, so the value of money would fall.
B)  the price level would fall, so the value of money would rise.
C)  the price level would rise, so the value of money would fall.
D)  the price level would rise, so the value of money would rise.E) A) and B)
F) B) and C)

Question 20

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Accepted Answer

A)  The $80 is a real variable. The quantity of shoes is a nominal variable.
B)  The $80 is a nominal variable. The quantity of shoes is a real variable.
C)  Both the $80 and the quantity of shoes are nominal variables.
D)  Both the $80 and the quantity of shoes are real variables.E) B) and C)
F) A) and D)

Exam 17: Money Growth and Inflation

When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You compute the price of jeans relative to tee-shirts.

Correct AnswerverifiedShow Answer

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

The Fisher effect says that

Correct AnswerverifiedShow Answer

Inflation necessarily distorts saving when either real interest income or nominal interest income is taxed.

Correct AnswerverifiedShow Answer

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

If M = 4,000, P = 1.5, and Y= 6,000, what is velocity?

Correct AnswerverifiedShow Answer

Hyperinflations are associated with governments printing money to finance expenditures.

Correct AnswerverifiedShow Answer

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate.

Correct AnswerverifiedShow Answer

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then

Correct AnswerverifiedShow Answer

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Correct AnswerverifiedShow Answer

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

Correct AnswerverifiedShow Answer

You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Menu costs refers to

Correct AnswerverifiedShow Answer

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

Correct AnswerverifiedShow Answer

When prices are falling, economists say that there is

Correct AnswerverifiedShow Answer

The classical dichotomy argues that changes in the money supply

Correct AnswerverifiedShow Answer

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Correct AnswerverifiedThe Fisher effect says that increases in...View AnswerShow Answer

Explain how inflation affects savings.

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

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The Fisher effect says that increases in...
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Correct Answer
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Inflation discourages savings. Income ta...
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