Question 1

What is inflation positively correlated with?

Accepted Answer

A)   nominal wage growth
B)   real interest rate
C)   productivity growth rate
D)   the price levelE) B) and D)
F) B) and C)

Question 2

According to the principle of monetary neutrality, what will an increase in the quantity of money also increase?

Accepted Answer

A)   employment
B)   nominal GDP
C)   the incentive to save
D)   labour productivityE) A) and B)
F) All of the above

Question 3

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
shoe leather costs: T...

Question 4

According to the classical dichotomy, what is NOT influenced by monetary factors?

Accepted Answer

A)   the nominal GDP
B)   the real wage rate
C)   the price level
D)   the nominal interest rateE) A) and C)
F) A) and B)

Question 5

The money supply in Goldova is $50 billion. Nominal GDP is $400 billion and real GDP is $200 billion. The central bank of Goldova has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 10 percent this year, how will the central bank of Goldova change the money supply this year?

Accepted Answer

A)   It will not change the money supply at all.
B)   It will reduce the money supply by 10 percent.
C)   It will increase the money supply by 10 percent.
D)   It will increase the money supply by 1.0 percent.E) B) and D)
F) A) and D)

Question 6

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 7

According to the classical dichotomy, what is NOT influenced by monetary factors?

Accepted Answer

A)   the price level
B)   real GDP
C)   nominal interest rates
D)   nominal GDPE) None of the above
F) A) and B)

Question 8

Which term refers to economic variables whose values are measured in monetary units?

Accepted Answer

A)   dichotomous variables
B)   nominal variables
C)   classical variables
D)   real variablesE) A) and B)
F) None of the above

Question 9

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 10

If the Bank of Canada were to unexpectedly decrease the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?

Accepted Answer

A)   The money supply growth rate is 2 percent.
B)   The real interest rate is 6 percent.
C)   The real interest rate is 4 percent.
D)   The money supply growth rate is 6 percent.E) A) and B)
F) A) and C)

Question 12

In order to maintain stable prices, what must the central bank do?

Accepted Answer

A)   maintain low interest rates
B)   keep unemployment low
C)   tightly control the money supply
D)   sell indexed bondsE) None of the above
F) A) and B)

Question 13

Define each of the symbols and explain the meaning of M × V = P × Y.

Accepted Answer

M is the quantity of money, V is the vel...

Question 14

What is an effect of expected inflation?

Accepted Answer

A)   It increases wages.
B)   It increases the incentive to save.
C)   It benefits lenders and borrowers.
D)   It changes real interest rates.E) None of the above
F) B) and C)

Question 15

If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?

Accepted Answer

A)   real output
B)   both real and nominal interest rate
C)   inflation rate
D)   the price levelE) B) and C)
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

According to the classical dichotomy, when the money supply doubles, what also doubles?

Accepted Answer

A)   the real prices
B)   the nominal interest rate
C)   the real GDP
D)   the nominal GDPE) A) and B)
F) B) and C)

Question 18

You put money in an account that earns 9 percent. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   3.0 percent
B)   3.1 percent
C)   4.1 percent
D)   5.5 percentE) C) and D)
F) B) and C)

Question 19

Over the past 70 years, what was the approximate average annual inflation rate?

Accepted Answer

A)   1 percent
B)   4 percent
C)   8 percent
D)   10 percentE) C) and D)
F) A) and B)

Question 20

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?

Accepted Answer

A)   It slopes upward because at higher prices people want to hold more money.
B)   It slopes downward because at higher prices people want to hold more money.
C)   It slopes downward because at higher price people want to hold less money.
D)   It slopes upward because at higher prices people want to hold less money.E) B) and C)
F) A) and B)

Exam 11: Money Growth and Inflation

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

Over the past 70 years, what was the approximate average annual inflation rate?

Correct Answer
verified

According to the classical dichotomy, what is NOT influenced by monetary factors?

Correct Answer
verified

You put money in an account that earns 9 percent. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Correct Answer
verified

What is an effect of expected inflation?

Correct Answer
verified

According to the classical dichotomy, when the money supply doubles, what also doubles?

Correct Answer
verified

In order to maintain stable prices, what must the central bank do?

Correct Answer
verified

Which term refers to economic variables whose values are measured in monetary units?

Correct Answer
verified

What is inflation positively correlated with?

Correct Answer
verified

According to the principle of monetary neutrality, what will an increase in the quantity of money also increase?

Correct Answer
verified

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?

Correct Answer
verified

Correct Answer
verified

List and define any two of the costs of high inflation.

Correct Answer
verified
The costs include:
shoe leather costs: T...
View Answer

According to the classical dichotomy, what is NOT influenced by monetary factors?

Correct Answer
verified

Nominal GDP measures output of final goods and services in physical terms.

Correct Answer
verified

If the Bank of Canada were to unexpectedly decrease the money supply, creditors would gain at the expense of debtors.

Correct Answer
verified

If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?

Correct Answer
verified

Define each of the symbols and explain the meaning of M × V = P × Y.

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Explain how inflation affects savings.

Correct Answer
verified
Inflation discourages savings. Income ta...
View Answer

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?

Correct Answer
verified

Exam 11: Money Growth and Inflation

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

Over the past 70 years, what was the approximate average annual inflation rate?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what is NOT influenced by monetary factors?

Correct AnswerverifiedShow Answer

You put money in an account that earns 9 percent. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

What is an effect of expected inflation?

Correct AnswerverifiedShow Answer

According to the classical dichotomy, when the money supply doubles, what also doubles?

Correct AnswerverifiedShow Answer

In order to maintain stable prices, what must the central bank do?

Correct AnswerverifiedShow Answer

Which term refers to economic variables whose values are measured in monetary units?

Correct AnswerverifiedShow Answer

What is inflation positively correlated with?

Correct AnswerverifiedShow Answer

According to the principle of monetary neutrality, what will an increase in the quantity of money also increase?

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and Fisher effect are both correct. If the nominal interest rate is 4 percent and inflation is 2 percent, what is the money supply growth rate or the real interest rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

List and define any two of the costs of high inflation.

Correct AnswerverifiedThe costs include:shoe leather costs: T...View AnswerShow Answer

According to the classical dichotomy, what is NOT influenced by monetary factors?

Correct AnswerverifiedShow Answer

Nominal GDP measures output of final goods and services in physical terms.

Correct AnswerverifiedShow Answer

If the Bank of Canada were to unexpectedly decrease the money supply, creditors would gain at the expense of debtors.

Correct AnswerverifiedShow Answer

If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?

Correct AnswerverifiedShow Answer

Define each of the symbols and explain the meaning of M × V = P × Y.

Correct AnswerverifiedM is the quantity of money, V is the vel...View AnswerShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings. Income ta...View AnswerShow Answer

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?

Correct AnswerverifiedShow Answer

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The costs include:
shoe leather costs: T...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
M is the quantity of money, V is the vel...
View Answer

Correct Answer
verified
Inflation discourages savings. Income ta...
View Answer

Correct Answer
verified