Question 1

Figure 22-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 2; also suppose the economy's real GDP is 45,000 for the year.If the money market is in equilibrium,then the velocity of money is approximately A)  4.5 B)  6.0 C)  9.0 D)  12.0" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-3.Suppose the relevant money-supply curve is the one labeled MS2; also suppose the economy's real GDP is 45,000 for the year.If the money market is in equilibrium,then the velocity of money is approximately

Accepted Answer

A)   4.5
B)   6.0
C)   9.0
D)   12.0E) A) and B)
F) A) and C)

Question 2

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who borrow than for those who save.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage.
D)   for savers in high income tax brackets than for savers in low income tax brackets.E) B) and D)
F) A) and B)

Question 3

U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.

Accepted Answer

A) True 
 B)False

Question 4

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.E) None of the above
F) A) and C)

Question 5

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent; the tax rate is 20 percent.
B)   Inflation is 2 percent; the tax rate is 40 percent.
C)   Inflation is 1 percent; the tax rate is 60 percent.
D)   The after-tax real interest rate is the same for all of the above.E) All of the above
F) B) and D)

Question 6

Which of the following helps to explain why the inflation fallacy is a fallacy?

Accepted Answer

A)   Increases in the price level can be created by increases in money demand.
B)   Nominal incomes tend to rise at the same time that the price level is rising.
C)   As the price level rises,the value of a dollar falls.
D)   Inflation only changes nominal variables.E) A) and D)
F) All of the above

Question 7

Interest rates adjusted for the effects of inflation

Accepted Answer

A)   and inflation are nominal variables.
B)   and inflation are real variables.
C)   are real variables; inflation is a nominal variable.
D)   are nominal variables; inflation is a real variable.E) B) and D)
F) A) and B)

Question 8

When money is neutral,which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price levelE) A) and D)
F) B) and C)

Question 9

In the U.S.,taxes on capital gains are computed using

Accepted Answer

A)   nominal gains.This is one way by which higher inflation discourages saving.
B)   nominal gains.This is one way by which higher inflation encourages saving.
C)   real gains.This is one way by which higher inflation discourages saving.
D)   real gains.This is one way by which higher inflation encourages saving.E) C) and D)
F) B) and D)

Question 10

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Accepted Answer

A)   both the classical dichotomy and the quantity theory of money.
B)   the classical dichotomy,but not the quantity theory of money.
C)   the quantity theory of money,but not the classical dichotomy.
D)   neither the classical dichotomy nor the quantity theory of money.E) A) and B)
F) B) and C)

Question 11

Which of the following is accurate?

Accepted Answer

A)   Monetary policy is neutral in both the short run and the long run.
B)   Though monetary policy is neutral in the long run,it may have effects on real variables in the short run.
C)   Monetary policy has profound effects on real variables in both the short run and the long run.
D)   Monetary policy has profound effects on real variables in the long run,but is neutral in the short run.E) B) and D)
F) C) and D)

Question 12

When we assume that the supply of money is a variable that the central bank controls,we

Accepted Answer

A)   must then assume as well that the demand for money is not influenced by the value of money.
B)   must then assume as well that the price level is unrelated to the value of money.
C)   are ignoring the fact that,in the real world,households are also suppliers of money.
D)   are ignoring the complications introduced by the role of the banking system.E) A) and D)
F) A) and C)

Question 13

When the money market is drawn with the value of money on the vertical axis,the value of money increases 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) A) and B)
F) None of the above

Question 14

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) A) and B)
F) A) and C)

Question 15

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 16

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.E) A) and D)
F) All of the above

Question 17

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Accepted Answer

A)   $40.If the price of goods rises,to maintain the real value of her money holdings she need to hold more dollars.
B)   8 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold more dollars.
C)   $40.If the price of goods rises,to maintain the real value of her money holdings she need to hold fewer dollars.
D)   8 units of goods.If the price of goods rises,to maintain the real value of her money holdings she needs to hold fewer dollars.E) C) and D)
F) A) and B)

Question 18

If inflation is higher than what was expected,

Accepted Answer

A)   creditors receive a lower real interest rate than they had anticipated.
B)   creditors pay a lower real interest rate than they had anticipated.
C)   debtors receive a higher real interest rate than they had anticipated.
D)   debtors pay a higher real interest rate than they had anticipated.E) B) and D)
F) A) and C)

Question 19

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

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 22: Money Growth and Inflation

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

Correct Answer
verified

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

Correct Answer
verified

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

Which of the following helps to explain why the inflation fallacy is a fallacy?

Correct Answer
verified

When money is neutral,which of the following increases when the money supply growth rate increases?

Correct Answer
verified

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Correct Answer
verified

In the U.S.,taxes on capital gains are computed using

Correct Answer
verified

U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.

Correct Answer
verified

The velocity of money is

Correct Answer
verified

Which of the following is accurate?

Correct Answer
verified

High and unexpected inflation has a greater cost

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Interest rates adjusted for the effects of inflation

Correct Answer
verified

If inflation is higher than what was expected,

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

When we assume that the supply of money is a variable that the central bank controls,we

Correct Answer
verified

Exam 22: Money Growth and Inflation

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

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

Given a nominal interest rate of 5 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

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

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

Which of the following helps to explain why the inflation fallacy is a fallacy?

Correct AnswerverifiedShow Answer

When money is neutral,which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

Suppose each good costs $5 per unit and Megan holds $40.What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

In the U.S.,taxes on capital gains are computed using

Correct AnswerverifiedShow Answer

U.S.prices rose at an average annual rate of about 4 percent over the last 70 years.

Correct AnswerverifiedShow Answer

The velocity of money is

Correct AnswerverifiedShow Answer

Which of the following is accurate?

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

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

Interest rates adjusted for the effects of inflation

Correct AnswerverifiedShow Answer

If inflation is higher than what was expected,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When we assume that the supply of money is a variable that the central bank controls,we

Correct AnswerverifiedShow Answer

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