Question 1

Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1 to MD2? A)  an increase in the value of money B)  a decrease in the price level C)  an open-market purchase of bonds by the Federal Reserve D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-2.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   None of the above is correct.E) All of the above
F) C) and D)

Question 2

Which movie is an allegory about late 19th century monetary policy?

Accepted Answer

A)   The Wizard of Oz
B)   Mary Poppins
C)   It's a Wonderful Life
D)   Trading PlacesE) B) and C)
F) A) and D)

Question 3

Velocity is

Accepted Answer

A)   Y/(M x P) and increases if dollars are exchanged less frequently.
B)   Y/(M x P) and increases if dollars are exchanged more frequently.
C)   (P x Y) /M and increases if dollars are exchanged less frequently.
D)   (P x Y) /M and increases if dollars are exchanged more frequently.E) B) and C)
F) A) and D)

Question 4

During the last tax year you lent money at a nominal rate of 6 percent.Actual inflation was 1 percent,but people had been expecting 1.5 percent .This difference between actual and expected inflation

Accepted Answer

A)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected.
B)   transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected.
C)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.
D)   transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.E) A) and B)
F) A) and C)

Question 5

Consider the money market drawn with the value of money on the vertical axis.If money demand is unchanged and the price level rises,then

Accepted Answer

A)   the money supply must have increased,perhaps because the Fed bought bonds.
B)   the money supply must have increased,perhaps because the Fed sold bonds.
C)   the money supply must have decreased,perhaps because the Fed bought bonds.
D)   the money supply must have decreased,perhaps because the Fed sold bonds.E) A) and C)
F) B) and C)

Question 6

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Accepted Answer

A)   velocity concept.
B)   Fisher effect.
C)   classical dichotomy.
D)   Mankiw effect.E) A) and D)
F) A) and C)

Question 7

Assuming the Fisher Effect holds,and given U.S.tax laws,an increase in inflation

Accepted Answer

A)   increases the real interest rate and the after-tax real rate of interest.
B)   increases the real interest rate and the after-tax real rate of interest
C)   does not change the real interest rate but raises the after tax real rate of interest
D)   does not change the real interest rate but reduces the after-tax real rate of interest.E) B) and C)
F) C) and D)

Question 8

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 9

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.
the Fed increases the money supply.
b.
people decide to demand less money at each value of money.

Accepted Answer

a. The Fed increases the money supply....

Question 10

When the money market is drawn with the value of money on the vertical axis,if the Federal Reserve sells bonds,then the money supply curve

Accepted Answer

A)   shifts right,causing the price level to rise.
B)   shifts right,causing the price level to fall.
C)   shifts left,causing the price level to rise.
D)   shifts left,causing the price level to fall.E) B) and C)
F) All of the above

Question 11

You put money into an account and earn a real interest rate of 5 percent.Inflation is 2 percent,and your marginal tax rate is 40 percent.What is your after-tax real rate of interest?

Accepted Answer

A)   1 percent
B)   1.8 percent
C)   2.2 percent
D)   4.2 percentE) A) and B)
F) C) and D)

Question 12

Over the past 70 years,the overall price level in the U.S.has experienced a(n)

Accepted Answer

A)   4-fold increase.
B)   8-fold increase.
C)   12-fold increase.
D)   16-fold increase.E) A) and C)
F) A) and B)

Question 13

When the money market is drawn with the value of money on the vertical axis,as the price level increases which of the following increases?

Accepted Answer

A)   the quantity of money demanded and the quantity of money supplied
B)   the quantity of money demanded but not the quantity of money supplied
C)   the quantity of money supplied but not the quantity of money demanded
D)   neither the quantity of money supplied nor the quantity of money demandedE) All of the above
F) None of the above

Question 14

Which of the following is correct?

Accepted Answer

A)   The classical dichotomy separates real and nominal variables.
B)   Monetary neutrality is the proposition that changes in the money supply do not change real variables.
C)   When studying long-run changes in the economy,the neutrality of money offers a good description of how the world works.
D)   All of the above are correct.E) A) and C)
F) A) and D)

Question 15

The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

Accepted Answer

A)   3 percent.
B)   4 percent.
C)   8 percent.
D)   12 percent.E) None of the above
F) A) and B)

Question 16

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent,then what is the real interest rate?

Accepted Answer

A)   11.5 percent
B)   7.5 percent
C)   4.5 percent
D)   2.5 percentE) None of the above
F) B) and D)

Question 17

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) B) and D)

Question 18

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 19

The supply of money increases when

Accepted Answer

A)   the value of money increases.
B)   the interest rate increases.
C)   the Fed makes open-market purchases.
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 20

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) C) and D)
F) B) and C)

Exam 22: Money Growth and Inflation

The quantity theory of money can explain hyperinflations but not moderate inflation.

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When the money market is drawn with the value of money on the vertical axis,if the Federal Reserve sells bonds,then the money supply curve

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Assuming the Fisher Effect holds,and given U.S.tax laws,an increase in inflation

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When the money market is drawn with the value of money on the vertical axis,as the price level increases which of the following increases?

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Over the past 70 years,the overall price level in the U.S.has experienced a(n)

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Which movie is an allegory about late 19th century monetary policy?

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During the last tax year you lent money at a nominal rate of 6 percent.Actual inflation was 1 percent,but people had been expecting 1.5 percent .This difference between actual and expected inflation

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The nominal interest rate is 6 percent and the real interest rate is 2 percent.What is the inflation rate?

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You put money into an account and earn a real interest rate of 5 percent.Inflation is 2 percent,and your marginal tax rate is 40 percent.What is your after-tax real rate of interest?

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The supply of money increases when

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The Fisher effect is crucial for understanding changes over time in

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Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-2.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

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Velocity is

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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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Consider the money market drawn with the value of money on the vertical axis.If money demand is unchanged and the price level rises,then

Correct AnswerverifiedShow Answer

The inflation rate is measured as the percentage change in a price index.

Correct AnswerverifiedShow Answer

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

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Which of the following is correct?

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Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Correct Answerverified a. The Fed increases the money supply....View AnswerShow Answer

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent,then what is the real interest rate?

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Figure 22-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 22-2.Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?

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a. The Fed increases the money supply....
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