Question 1

Which of the following is correct?

Accepted Answer

A)  Inflation impedes financial markets in their role of allocating savings to alternative investments.
B)  Inflation encourages savings through the tax treatment on capital gains.
C)  Inflation encourages larger holdings of currency by the public.
D)  Inflation reduces people's real purchasing power.E) All of the above
F) A) and B)

Question 2

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)  is easier to impose.
B)  reduces inflation.
C)  falls mainly on high-income individuals.
D)  reduces the real cost of government expenditure.E) B) and D)
F) A) and B)

Question 3

The term hyperinflation refers to

Accepted Answer

A)  the spread of inflation from one country to others.
B)  a decrease in the inflation rate.
C)  a period of very high inflation.
D)  inflation accompanied by a recession.E) A) and B)
F) A) and C)

Question 4

Figure 17-1 1, then A) there is no excess supply or excess demand if the value of money is 2. B) the equilibrium is at point C. C) there is an excess supply of money if the value of money is 1. D) None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1. If the current money supply is MS1, then

Accepted Answer

A)  there is no excess supply or excess demand if the value of money is 2.
B)  the equilibrium is at point C.
C)  there is an excess supply of money if the value of money is 1.
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 5

If Y and M are constant and V doubles, the quantity equation implies that the price level

Accepted Answer

A)  falls to half it's original level.
B)  doubles.
C)  more than doubles.
D)  does not change.E) A) and C)
F) A) and D)

Question 6

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 17-2. What quantity is measured along the horizontal axis?

Accepted Answer

A)  the price level
B)  the real interest rate
C)  the value of money
D)  the quantity of moneyE) A) and D)
F) None of the above

Question 7

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Accepted Answer

A)  His real and nominal salary have risen.
B)  His real and nominal salary have fallen.
C)  His real salary has risen and his nominal salary has fallen.
D)  His real salary has fallen and his nominal salary has risen.E) None of the above
F) A) and C)

Question 8

The country of Robinya has a tax system identical to that of the United States. Suppose someone in Robinya bought a parcel of land for 10,000 deera (the local currency)  in 1970 when the price index equaled 100. In 2010, the person sold the land for 100,000 deera, and the price index equaled 500. The tax rate on nominal capital gains was 20 percent. Compute the taxes the person paid on the nominal gain and the change in the real value of the land in terms of 2010 prices to find the after-tax real rate of capital gain.

Accepted Answer

A)  -20 percent
B)  20 percent
C)  42 percent
D)  64 percentE) None of the above
F) All of the above

Question 9

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

Accepted Answer

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

Question 10

Monetary neutrality means that a change in the money supply

Accepted Answer

A)  does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run.
B)  does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.
C)  does change real GDP. Most economists think this is a good description of the economy in the short-run and the long run.
D)  does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.E) None of the above
F) A) and D)

Question 11

Which of the following statements about inflation is correct?

Accepted Answer

A)  Evidence from studies indicates that, in U.S. newspapers, inflation is mentioned less frequently than other economic terms, such as unemployment and productivity.
B)  People believe the inflation fallacy because they tend to believe too strongly in the principle of monetary neutrality.
C)  Nominal incomes are determined by nominal factors; they are not affected by real factors.
D)  Inflation does not in itself reduce people's real purchasing power.E) A) and D)
F) A) and C)

Question 12

If Y and V are constant and M doubles, the quantity equation implies that the price level

Accepted Answer

A)  more than doubles.
B)  changes but less than doubles.
C)  doubles.
D)  does not changeE) C) and D)
F) A) and C)

Question 13

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Accepted Answer

A)  increases the price level and increases the value of money.
B)  increases the price level and decreases the value of money.
C)  decreases the price level and increases the value of money.
D)  decreases the price level and decreases the value of money.E) A) and B)
F) A) and C)

Question 14

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) None of the above
F) A) and B)

Question 15

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)  1/P represents the value of money measured in terms of goods and services.
B)  P can be interpreted as the inflation rate.
C)  the supply of money influences the value of P, but the demand for money does not.
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 16

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo...

Question 17

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 18

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 19

Why did farmers in the late 1800s dislike deflation?

Accepted Answer

Most had large nominal debts. ...

Question 20

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Accepted Answer

A)  lenders and people holding a lot of currency
B)  lenders but not people holding a lot of currency
C)  people holding a lot of currency but not lenders
D)  neither lenders nor people holding a lot of currencyE) A) and B)
F) A) and C)

Exam 17: Money Growth and Inflation

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Correct Answer
verified

Which of the following statements about inflation is correct?

Correct Answer
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Which of the following is correct?

Correct Answer
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If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Correct Answer
verified

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

Correct Answer
verified

If P denotes the price of goods and services measured in terms of money, then

Correct Answer
verified

If Y and V are constant and M doubles, the quantity equation implies that the price level

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Correct Answer
verified

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct Answer
verified

Monetary neutrality means that a change in the money supply

Correct Answer
verified

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. What quantity is measured along the horizontal axis?

Correct Answer
verified

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct Answer
verified

Why did farmers in the late 1800s dislike deflation?

Correct Answer
verified
Most had large nominal debts. ...
View Answer

Correct Answer
verified

The term hyperinflation refers to

Correct Answer
verified

If Y and M are constant and V doubles, the quantity equation implies that the price level

Correct Answer
verified

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct Answer
verified
Relative prices are the value of one goo...
View Answer

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

Correct Answer
verified

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Correct Answer
verified

Figure 17-1 -Refer to Figure 17-1. If the current money supply is MS₁, then

Correct Answer
verified

Exam 17: Money Growth and Inflation

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Correct AnswerverifiedShow Answer

Which of the following statements about inflation is correct?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If P denotes the price of goods and services measured in terms of money, then

Correct AnswerverifiedShow Answer

If Y and V are constant and M doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply

Correct AnswerverifiedShow Answer

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply

Correct AnswerverifiedShow Answer

Figure 17-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-2. What quantity is measured along the horizontal axis?

Correct AnswerverifiedShow Answer

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

Correct AnswerverifiedShow Answer

Why did farmers in the late 1800s dislike deflation?

Correct AnswerverifiedMost had large nominal debts. ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The term hyperinflation refers to

Correct AnswerverifiedShow Answer

If Y and M are constant and V doubles, the quantity equation implies that the price level

Correct AnswerverifiedShow Answer

Inflation distorts relative prices. What does this mean and why does it impose a cost on society?

Correct AnswerverifiedRelative prices are the value of one goo...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Correct AnswerverifiedShow Answer

Figure 17-1 -Refer to Figure 17-1. If the current money supply is MS1, then

Correct AnswerverifiedShow Answer

Correct Answer
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Most had large nominal debts. ...
View 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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Relative prices are the value of one goo...
View Answer

Correct Answer
verified

Correct Answer
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Figure 17-1 -Refer to Figure 17-1. If the current money supply is MS₁, then

Correct Answer
verified