Question 1

According to the classical dichotomy, when the money supply doubles, what also doubles?

Accepted Answer

A)   the real prices
B)   the nominal interest rate
C)   the real GDP
D)   the nominal GDPE) B) and D)
F) B) and C)

Question 2

Velocity in the country of Nemedia is always stable. In 2014, the money supply was $100 billion and real GDP was $300 billion. In 2015, the money supply increased by 10 percent, real GDP increased by 5 percent, and nominal GDP equalled $660 billion. By how much did the price level increase between 2014 and 2015?

Accepted Answer

A)   2.38 percent
B)   4.76 percent
C)   9.50 percent
D)   10.0 percentE) B) and D)
F) B) and C)

Question 3

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

Accepted Answer

A) True 
 B)False

Question 4

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?

Accepted Answer

A)   if either money demand or money supply shifts right
B)   if either money demand or money supply shifts left
C)   if money demand shifts right or money supply shifts left
D)   if money demand shifts left or money supply shifts rightE) A) and B)
F) B) and C)

Question 5

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?

Accepted Answer

A)   Her real and nominal wages have risen.
B)   Her real and nominal wages have fallen.
C)   Her real wage has risen, but her nominal wage has fallen.
D)   Her real wage has fallen, but her nominal wage has risen.E) A) and B)
F) B) and C)

Question 6

In the long run, 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 B)
F) A) and C)

Question 7

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 8

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 9

Greta puts money in a savings account at her bank, earning 3.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 1.5 percent. How has the amount of goods Greta can buy changed one year later?

Accepted Answer

A)   Greta can buy 3.5 percent more goods.
B)   Greta can buy 3.5 percent less goods.
C)   Greta can buy 2 percent more goods.
D)   Greta can buy 2 percent less goods.E) B) and C)
F) None of the above

Question 10

The country of Aquilonia has a tax system identical to that of Canada. Suppose an Aquilonian bought a parcel of land for $10,000 in 1960 when the price index equalled 100. In 2016, the person sold the land for $100,000, and the price index equalled 500. If the person must pay 20 percent of any capital gain in taxes, what is the after-tax real capital gain (in 2016 dollars)  on the land?

Accepted Answer

A)   $6400
B)   $32,000
C)   $62,000
D)   $72,000E) A) and B)
F) A) and C)

Question 11

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Accepted Answer

A)   Evidence shows that money growth and inflation moved together, which supports the quantity theory.
B)   Evidence shows that money growth and inflation moved together, which does not support the quantity theory.
C)   Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory.
D)   Evidence shows that money growth and inflation did not move closely with each other, which does not support the quantity theory.E) A) and B)
F) B) and C)

Question 12

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 13

What does the quantity theory of money try to explain?

Accepted Answer

A)   how inflation determines economic growth
B)   the relationship between the quantity of money and the price level
C)   the determinants of relative prices in the economy
D)   the relationship between inflation and unemploymentE) B) and C)
F) B) and D)

Question 14

According to the quantity equation, if P = 15, Y = 100, and M = 250, what is V?

Accepted Answer

A)   1.75
B)   3
C)   6
D)   30E) None of the above
F) A) and C)

Question 15

What does the principle of monetary neutrality imply?

Accepted Answer

A)   An increase in the money supply will increase real GDP and the price level.
B)   An increase in the money supply will increase real GDP, but not the price level.
C)   An increase in the money supply will increase the price level, but not real GDP.
D)   An increase in the money supply will increase neither the price level nor real GDP.E) A) and D)
F) A) and C)

Question 16

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

Accepted Answer

A)   The real interest rate would decrease by 1 percentage point.
B)   The real interest rate would increase by 1 percentage point.
C)   The real interest rate would decrease by 3 percentage points.
D)   The real interest rate would increase by 3 percentage points.E) All of the above
F) A) and B)

Question 17

Assuming that V is constant, what could result from an increase in M in the quantity equation?

Accepted Answer

A)   a decrease in the price level
B)   an increase in real GDP
C)   a decrease in nominal GDP
D)   an increase in the price levelE) A) and B)
F) B) and D)

Question 18

What terms refers to the cost of changing price tags and price listings?

Accepted Answer

A)   inflation-induced tax distortions
B)   resource misallocation costs
C)   shoe leather costs
D)   menu costsE) A) and D)
F) B) and C)

Question 19

Trent bought a parcel of land for $20,000 in 1960 when the price index was 100; he sold it in 2016, when the price index was 600, for $100,000. If Trent must pay 20 percent of any capital gain in taxes, what is his after-tax real capital gain (in 2016 dollars) ?

Accepted Answer

A)   -$64,000
B)   -$36,000
C)   -$16,667
D)   -$3333E) None of the above
F) B) and C)

Question 20

According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?

Accepted Answer

A)   200, 3
B)   400, 4
C)   600, 5
D)   800, 6E) B) and C)
F) None of the above

Exam 11: Money Growth and Inflation

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?

Correct Answer
verified

Correct Answer
verified

Assuming that V is constant, what could result from an increase in M in the quantity equation?

Correct Answer
verified

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

Correct Answer
verified

What does the quantity theory of money try to explain?

Correct Answer
verified

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

What terms refers to the cost of changing price tags and price listings?

Correct Answer
verified

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct Answer
verified

According to the quantity equation, if P = 15, Y = 100, and M = 250, what is V?

Correct Answer
verified

Explain how inflation affects savings.

Correct Answer
verified
Inflation discourages savings. Income ta...
View Answer

According to the classical dichotomy, when the money supply doubles, what also doubles?

Correct Answer
verified

Correct Answer
verified

Trent bought a parcel of land for $20,000 in 1960 when the price index was 100; he sold it in 2016, when the price index was 600, for $100,000. If Trent must pay 20 percent of any capital gain in taxes, what is his after-tax real capital gain (in 2016 dollars) ?

Correct Answer
verified

Greta puts money in a savings account at her bank, earning 3.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 1.5 percent. How has the amount of goods Greta can buy changed one year later?

Correct Answer
verified

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Correct Answer
verified

In the long run, when money is neutral, which of the following increases when the money supply growth rate increases?

Correct Answer
verified

What does the principle of monetary neutrality imply?

Correct Answer
verified

According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?

Correct Answer
verified

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

Correct Answer
verified

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?

Correct Answer
verified

Exam 11: Money Growth and Inflation

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assuming that V is constant, what could result from an increase in M in the quantity equation?

Correct AnswerverifiedShow Answer

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

Correct AnswerverifiedShow Answer

What does the quantity theory of money try to explain?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

What terms refers to the cost of changing price tags and price listings?

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

According to the quantity equation, if P = 15, Y = 100, and M = 250, what is V?

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

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

According to the classical dichotomy, when the money supply doubles, what also doubles?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Trent bought a parcel of land for $20,000 in 1960 when the price index was 100; he sold it in 2016, when the price index was 600, for $100,000. If Trent must pay 20 percent of any capital gain in taxes, what is his after-tax real capital gain (in 2016 dollars) ?

Correct AnswerverifiedShow Answer

Greta puts money in a savings account at her bank, earning 3.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 1.5 percent. How has the amount of goods Greta can buy changed one year later?

Correct AnswerverifiedShow Answer

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Correct AnswerverifiedShow Answer

In the long run, when money is neutral, which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

What does the principle of monetary neutrality imply?

Correct AnswerverifiedShow Answer

According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?

Correct AnswerverifiedShow Answer

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

Correct AnswerverifiedShow Answer

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Inflation discourages savings. Income ta...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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