Question 1

According to the quantity equation,if P = 4 and Y = 450,then which of the following pairs of values are possible?

Accepted Answer

A)   M = 800,V = 4
B)   M = 600,V =3
C)   M = 400,V =2
D)   M = 200,V =1E) A) and B)
F) A) and C)

Question 2

A rising value of money eliminates an excess supply of money.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Accepted Answer

A)   the inflation rate and real interest rates.
B)   the inflation rate,but not real interest rates.
C)   real interest rates,but not the inflation rate.
D)   neither the inflation rate nor real interest rates.E) A) and C)
F) A) and B)

Question 4

Based on the quantity equation,if M = 150,V = 4,and Y = 200,then P =

Accepted Answer

A)   1/3.
B)   1/2.
C)   2
D)   3.E) All of the above
F) A) and B)

Question 5

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

Question 6

For a given level of money and real GDP,an increase in velocity would lead to an increase in the price level.

Accepted Answer

A) True 
 B)False

Question 7

A decrease in the money supply creates an excess

Accepted Answer

A)   supply of money that is eliminated by rising prices.
B)   supply of money that is eliminated by falling prices.
C)   demand for money that is eliminated by rising prices.
D)   demand for money that is eliminated by falling prices.E) A) and D)
F) A) and C)

Question 8

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 
-Refer to Figure 30-3.What quantity is measured along the vertical axis?

Accepted Answer

A)   the price level
B)   the velocity of money
C)   the value of money
D)   the quantity of moneyE) B) and D)
F) A) and C)

Question 9

The velocity of money is

Accepted Answer

A)   the rate at which the Fed puts money into the economy.
B)   the same thing as the long-term growth rate of the money supply.
C)   the money supply divided by nominal GDP.
D)   the average number of times per year a dollar is spent.E) C) and D)
F) A) and C)

Question 10

The money supply curve shifts to the left when the Fed buys government bonds.

Accepted Answer

A) True 
 B)False

Question 11

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)   Inflation is 5 percent;the tax rate is 20 percent.
B)   Inflation is 4 percent;the tax rate is 30 percent.
C)   Inflation is 3 percent;the tax rate is 40 percent.
D)   The after-tax real interest rate is the same for all of the above.E) B) and C)
F) A) and B)

Question 12

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

Question 13

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

Question 14

Inflation is costly only if it is unanticipated.

Accepted Answer

A) True 
 B)False

Question 15

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) A) and D)
F) C) and D)

Question 16

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 C)
F) A) and B)

Question 17

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) A) and D)
F) A) and B)

Question 18

You put money into an account and earn an after-tax real interest rate of 2.5 percent.If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent,then what is the tax rate?

Accepted Answer

A)   28.00 percent
B)   36.25 percent
C)   43.75 percent
D)   67.50 percentE) All of the above
F) A) and D)

Question 19

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 20

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 C)
F) A) and D)

Exam 30: Money Growth and Inflation

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

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

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

Correct AnswerverifiedShow Answer

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 30-3.What quantity is measured along the vertical axis?

Correct AnswerverifiedShow Answer

The velocity of money is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

Correct AnswerverifiedShow Answer

You put money into an account and earn an after-tax real interest rate of 2.5 percent.If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent,then what is the tax rate?

Correct AnswerverifiedShow Answer

A rising value of money eliminates an excess supply of money.

Correct AnswerverifiedShow Answer

Inflation is costly only if it is unanticipated.

Correct AnswerverifiedShow Answer

For a given level of money and real GDP,an increase in velocity would lead to an increase in 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 price level causes a

Correct AnswerverifiedShow Answer

A decrease in the money supply creates an excess

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

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

Correct AnswerverifiedShow Answer

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

Based on the quantity equation,if M = 150,V = 4,and Y = 200,then P =

Correct AnswerverifiedShow Answer

The money supply curve shifts to the left when the Fed buys government bonds.

Correct AnswerverifiedShow Answer

According to the quantity equation,if P = 4 and Y = 450,then which of the following pairs of values are possible?

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real interest rate?

Correct AnswerverifiedShow Answer

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