Question 1

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

Accepted Answer

A)  unemployment
B)  the price level
C)  nominal interest rates
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 2

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Accepted Answer

A)  inflation, nominal interest rates, and real interest rates.
B)  inflation and nominal interest rates, but does not change real interest rates.
C)  inflation and real interest rates, but does not change nominal interest rates.
D)  neither inflation, nominal interest rates, or real interest rates.E) A) and B)
F) A) and C)

Question 3

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Accepted Answer

A)  The nominal interest rate was 13.5 percent and the inflation rate was 7.5 percent.
B)  The nominal interest rate was 13.5 percent and the inflation rate was 1.5 percent.
C)  The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.
D)  The nominal interest rate was 6 percent and the inflation rate was 7.5 percent.E) A) and C)
F) A) and B)

Question 4

The Fisher effect is crucial for understanding changes over time in

Accepted Answer

A)  the nominal interest rate.
B)  the real interest rate.
C)  the inflation rate.
D)  the unemployment rate.E) All of the above
F) C) and D)

Question 5

In the U.S., from the early 1980s through the early 1990s,

Accepted Answer

A)  both inflation and nominal interest rates rose.
B)  both inflation and nominal interest rates fell.
C)  the inflation rate fell and the nominal interest rate rose.
D)  the inflation rate rose and the nominal interest rate fell.E) A) and D)
F) None of the above

Question 6

The inflation tax falls mostly heavily on

Accepted Answer

A)  those who hold a lot of currency and accounts for a large share of U.S. government revenue.
B)  those who hold a lot of currency but accounts for a small share of U.S. government revenue.
C)  those who hold little currency and accounts for a large share of U.S. government revenue.
D)  those who hold little currency but accounts for a small share of U.S. government revenue.E) A) and C)
F) A) and B)

Question 7

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)  Inflation is 2.5 percent; the tax rate is 25 percent.
B)  Inflation is 3 percent; the tax rate is 20 percent.
C)  Inflation is 2 percent; the tax rate is 30 percent.
D)  The after-tax real interest rate is the same for all of the above.E) A) and B)
F) C) and D)

Question 8

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Accepted Answer

A)  both higher inflation and higher nominal interest rates.
B)  a higher inflation rate, but not higher nominal interest rates.
C)  a higher nominal interest rate, but not higher inflation.
D)  neither a higher inflation rate nor a higher nominal interest rate.E) A) and C)
F) All of the above

Question 9

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

Accepted Answer

A)  10 percent
B)  7 percent
C)  3 percent
D)  2.5 percentE) A) and B)
F) A) and C)

Question 10

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.E) None of the above
F) All of the above

Question 11

Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

Accepted Answer

A)  The country has high money supply growth.
B)  Inflation is acting like a tax on everyone who holds money.
C)  The government is printing money to finance its expenditures.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 12

Over the last 70 years, the average annual U.S. inflation rate was about

Accepted Answer

A)  2 percent, implying that prices have increased 10-fold.
B)  4 percent, implying that prices have increased 10-fold.
C)  2 percent, implying that prices have increased 16-fold.
D)  4 percent, implying that prices increased about 16-fold.E) A) and D)
F) All of the above

Question 13

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Accepted Answer

A)  the price level grew at about the same rate as the money supply.
B)  the price level grew at a much faster rate than the money supply.
C)  the price level grew at a much slower rate than the money supply.
D)  the inflation rate and the money supply growth rate do not appear to be related.E) None of the above
F) A) and B)

Question 14

Which of the following can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage divided by the price level
B)  real output
C)  real interest rates
D)  None of the above is correct.E) A) and B)
F) None of the above

Question 15

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

Accepted Answer

A)  $0.90.
B)  $1.00.
C)  $1.11.
D)  $1.33.E) A) and B)
F) A) and C)

Question 16

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

Question 17

If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

Accepted Answer

A)  10 percent
B)  7 percent
C)  3 percent
D)  2.5 percentE) A) and B)
F) A) and C)

Question 18

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)  high and it turns out to be high.
B)  low and it turns out to be low.
C)  low and it turns out to be high.
D)  high and it turns out to be low.E) C) and D)
F) None of the above

Question 19

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Accepted Answer

A)  both a nominal gain and a real gain, and you paid taxes on the nominal gain.
B)  both a nominal gain and a real gain, and you paid taxes only on the real gain.
C)  a nominal gain, but no real gain, and you paid taxes on the nominal gain.
D)  a nominal gain, but no real gain, and you paid no taxes on the transaction.E) C) and D)
F) A) and B)

Question 20

In the 1970s, the U.S. inflation rate reached about

Accepted Answer

A)  7 percent per year.
B)  10 percent per year.
C)  14 percent per year.
D)  20 percent per year.E) A) and C)
F) None of the above

Exam 17: Money Growth and Inflation

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

Correct AnswerverifiedShow Answer

In the 1970s, the U.S. inflation rate reached about

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Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?

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If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real interest rate?

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If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

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

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Which of the following can a country increase in the long run by increasing its money growth rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fisher effect is crucial for understanding changes over time in

Correct AnswerverifiedShow Answer

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

Correct AnswerverifiedShow Answer

Over the last 70 years, the average annual U.S. inflation rate was about

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct AnswerverifiedShow Answer

When the money supply and the price level in countries that experienced hyperinflation are plotted on a graph against time, we see that

Correct AnswerverifiedShow Answer

The inflation tax falls mostly heavily on

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold and the money supply growth rate has been the same for a long time. Other things the same a higher money supply growth would be associated with

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

Correct AnswerverifiedShow Answer

In the U.S., from the early 1980s through the early 1990s,

Correct AnswerverifiedShow Answer

The nominal interest rate is 5 percent and the real interest rate is 2 percent. What is the inflation rate?

Correct AnswerverifiedShow Answer

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