Question 1

Relative-price variability is "automatic" when

Accepted Answer

A)   firms change prices only once in a while.
B)   firms change prices often.
C)   people increase the frequency of their trips to the bank.
D)   people decrease the frequency of their trips to the bank.E) B) and D)
F) A) and C)

Question 2

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Accepted Answer

A) True 
 B)False

Question 3

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Accepted Answer

A)   4.3 percent
B)   3.1 percent
C)   1.8 percent
D)   1.2 percentE) B) and C)
F) A) and D)

Question 4

In the U.S., people are required to pay taxes on

Accepted Answer

A)   nominal interest earnings, irrespective of their real interest earnings.
B)   real interest earnings, irrespective of their nominal interest earnings.
C)   real capital gains, irrespective of their nominal capital gains.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 5

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Accepted Answer

A)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
B)   your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
C)   your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
D)   your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.E) All of the above
F) A) and B)

Question 6

Market economies rely on which of the following to allocate scarce resources?

Accepted Answer

A)   government
B)   consumers
C)   relative prices
D)   real interest ratesE) A) and B)
F) B) and C)

Question 7

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 8

In which case below is the real interest rate the highest?

Accepted Answer

A)   the nominal interest rate = 4% and inflation = 3%
B)   the nominal interest rate = 3% and inflation = 1%
C)   the nominal interest rate = 2% and inflation = -2%
D)   the nominal interest rate = 1% and inflation = -4%E) B) and C)
F) All of the above

Question 9

Suppose that in some tax year you earned a nominal interest rate of 4 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 2 percent. What was your tax rate?

Accepted Answer

A)   50 percent
B)   33.3 percent
C)   25 percent
D)   None of the above are correct.E) None of the above
F) A) and B)

Question 10

The Fisher effect says that

Accepted Answer

A)   the nominal interest rate adjusts one for one with the inflation rate.
B)   the growth rate of the money supply is negatively related to the velocity of money.
C)   real variables are heavily influenced by the monetary system.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 11

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

Question 12

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

Accepted Answer

A)   $4,000.
B)   $2,250.
C)   $250.
D)   $36,000.E) A) and D)
F) A) and B)

Question 13

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Accepted Answer

A)   the money supply and the price level increase.
B)   the money supply and the price level decrease.
C)   the money supply increases and the price level decreases.
D)   the money supply increases and the price level increases.E) None of the above
F) A) and B)

Question 14

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

Question 15

The shoeleather cost of inflation refers to

Accepted Answer

A)   the redistributional effects of unexpected inflation.
B)   the time spent searching for low prices when inflation rises.
C)   the waste of resources used to maintain lower money holdings.
D)   the increased cost to the government of printing more money.E) A) and B)
F) All of the above

Question 16

When deciding how much to save, people care most about

Accepted Answer

A)   after-tax nominal interest rates.
B)   after-tax real interest rates.
C)   before-tax real interest rates.
D)   before-tax nominal interest rates.E) A) and B)
F) A) and D)

Question 17

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 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) B) and C)
F) A) and C)

Question 18

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

Accepted Answer

A)   higher than he had expected, and the real value of the loan is higher than he had expected.
B)   higher than he had expected, and the real value of the loan is lower than he had expected.
C)   lower than he had expected, and the real value of the loan is higher than he had expected.
D)   lower then he had expected, and the real value of the loan is lower than he had expected.E) A) and B)
F) A) and C)

Question 19

Figure 12-1
 2 and the value of money is 2, then A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise. B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall. C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise. D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-1. If the money supply is MS2 and the value of money is 2, then

Accepted Answer

A)   the quantity of money demanded is greater than the quantity supplied; the price level will rise.
B)   the quantity of money demanded is greater than the quantity supplied; the price level will fall.
C)   the quantity of money supplied is greater than the quantity demanded; the price level will rise.
D)   the quantity of money supplied is greater than the quantity demanded; the price level will fall.E) C) and D)
F) A) and D)

Question 20

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Accepted Answer

A) True 
 B)False

Exam 12: Money Growth and Inflation

Suppose one year ago the price index was 120 and Maria purchased $20,000 worth of bonds. One year later the price index is 126. Maria redeems his bonds for $22,250 and is in a 40 percent tax bracket. What is Maria's real after-tax rate of interest to the nearest tenth of a percent?

Correct AnswerverifiedShow Answer

Velocity is

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

When deciding how much to save, people care most about

Correct AnswerverifiedShow Answer

The Fisher effect is crucial for understanding changes over time in

Correct AnswerverifiedShow Answer

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Correct AnswerverifiedShow Answer

The Fisher effect says that

Correct AnswerverifiedShow Answer

Relative-price variability is "automatic" when

Correct AnswerverifiedShow Answer

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

Correct AnswerverifiedShow Answer

The shoeleather cost of inflation refers to

Correct AnswerverifiedShow Answer

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

Correct AnswerverifiedShow Answer

In which case below is the real interest rate the highest?

Correct AnswerverifiedShow Answer

Suppose that in some tax year you earned a nominal interest rate of 4 percent. During the time you held these funds inflation was 1 percent. You compute that you made a real after-tax interest rate of 2 percent. What was your tax rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Correct AnswerverifiedShow Answer

Figure 12-1 -Refer to Figure 12-1. If the money supply is MS2 and the value of money is 2, then

Correct AnswerverifiedShow Answer

Market economies rely on which of the following to allocate scarce resources?

Correct AnswerverifiedShow Answer

In the U.S., people are required to pay taxes on

Correct AnswerverifiedShow Answer

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Figure 12-1 -Refer to Figure 12-1. If the money supply is MS₂ and the value of money is 2, then

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