Question 1

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Accepted Answer

A)   excess demand for money that will result in an increase in spending.
B)   excess demand for money that will result in a decrease in spending.
C)   excess supply of money that will result in an increase in spending.
D)   excess supply of money that will result in a decrease in spending.E) A) and D)
F) All of the above

Question 2

The increase in the overall level of prices is known as .

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The answer of The increase in the overall level of...

Question 3

Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result,

Accepted Answer

A)   The number of dollars you receive increases and the purchasing power of the dollars you receive increases.
B)   The number of dollars you receive increases and the purchasing power of the dollars you receive decreases.
C)   The number of dollars you receive decreases and the purchasing power of the dollars you receive increases.
D)   The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases.E) B) and C)
F) A) and D)

Question 4

Which country is correctly matched with its 2009 inflation rate?

Accepted Answer

A)   9 percent inflation in the United States.
B)   3.6 percent inflation in Russia.
C)   59 percent inflation in Venezuela.
D)   9.3 percent inflation in India.E) A) and C)
F) C) and D)

Question 5

If the economy unexpectedly went from inflation to deflation,

Accepted Answer

A)   both debtors and creditors would have reduced real wealth.
B)   both debtors and creditors would have increased real wealth.
C)   debtors would gain at the expense of creditors.
D)   creditors would gain at the expense of debtors.E) B) and D)
F) A) and B)

Question 6

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent; the tax rate is 15 percent.
B)   Inflation is 2 percent; the tax rate is 40 percent.
C)   Inflation is 1 percent; the tax rate is 50 percent.
D)   The after-tax real interest rate is the same for all of the above.E) A) and B)
F) None of the above

Question 7

When deflation exists,

Accepted Answer

A)   the real interest rate is less than the nominal interest rate.
B)   the real interest rate is greater than the nominal interest rate.
C)   the real interest rate and inflation are less than the nominal interest rate.
D)   prices rise.E) A) and C)
F) C) and D)

Question 8

Which of the following is correct?

Accepted Answer

A)   If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
B)   If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.
C)   If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right.
D)   If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right.E) A) and B)
F) A) and C)

Question 9

If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

Accepted Answer

The after tax nominal interest...

Question 10

You put money into an account that earns an 8 percent nominal interest rate. 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)   2.2 percent
B)   2.7 percent
C)   11.7 percent
D)   7.7 percentE) A) and C)
F) C) and D)

Question 11

Which of the following is correct? Inflation

Accepted Answer

A)   impedes financial markets in their role of allocating resources.
B)   reduces the purchasing power of the average consumer.
C)   generally increases after-tax real interest rates.
D)   is most costly when anticipated.E) B) and D)
F) A) and B)

Question 12

Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Accepted Answer

When the money supply increases, there i...

Question 13

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Accepted Answer

A)   Jane's nominal income and real income decreased this year.
B)   Jane's nominal income decreased this year, but her real income increased.
C)   Jane's nominal income and real income increased this year.
D)   Jane's nominal income increased this year, but her real income decreased.E) A) and B)
F) C) and D)

Question 14

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Accepted Answer

Higher inflation gives people ...

Question 15

Over the past 80 years, prices in the U.S. have risen on average about

Accepted Answer

A)   2 percent per year.
B)   4 percent per year.
C)   3.6 percent per year.
D)   6 percent per year.E) A) and B)
F) C) and D)

Question 16

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

Accepted Answer

A)   the value of money.
B)   real interest rates.
C)   nominal interest rates.
D)   the money supply.E) A) and B)
F) A) and C)

Question 17

A reduction in the inflation rate would make relative prices

Accepted Answer

A)   less variable, making it more likely that resources will be allocated to their best use.
B)   less variable, making it less likely that resources will be allocated to their best use.
C)   more variable, making it more likely that resources will be allocated to their best use.
D)   more variable, making it less likely that resources will be allocated to their best use.E) B) and D)
F) B) and C)

Question 18

In the last part of the 1800's

Accepted Answer

A)   deflation made it harder for farmers to pay off their debt.
B)   deflation made it easier for farmers to pay off their debt.
C)   inflation made it harder for farmers to pay off their debt.
D)   inflation made it easier for farmers to pay off their debt.E) A) and B)
F) A) and C)

Question 19

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Accepted Answer

A)   The $750 is a nominal variable. The 300 cups of coffee is a real variable.
B)   The $750 is a real variable. The 300 cups of coffee is a nominal variable.
C)   Both the $750 and the 300 cups of coffee are nominal variables.
D)   Both the $750 and the 300 cups of coffee are real variables.E) All of the above
F) A) and D)

Question 20

The inflation tax refers to

Accepted Answer

A)   the revenue a government creates by printing money.
B)   higher inflation which requires more frequent price changes.
C)   the idea that, other things the same, an increase in the tax rate raises the inflation rate.
D)   taxes being indexed for inflation.E) B) and C)
F) C) and D)

Exam 30: Money Growth and Inflation

The increase in the overall level of prices is known as .

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Which of the following is correct?

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You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

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A reduction in the inflation rate would make relative prices

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Which country is correctly matched with its 2009 inflation rate?

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The inflation tax refers to

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When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

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If the economy unexpectedly went from inflation to deflation,

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Explain the adjustment process in the money market that creates a change in the price level when the money supply increases.

Correct AnswerverifiedWhen the money supply increases, there i...View AnswerShow Answer

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

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If the inflation rate was 8%, and the tax rate was 20%, and you deposited money in a bank account that pays 12%, what is your after tax real interest rate? Show you work.

Correct AnswerverifiedThe after tax nominal interest...View AnswerShow Answer

Over the past 80 years, prices in the U.S. have risen on average about

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The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Correct AnswerverifiedHigher inflation gives people ...View AnswerShow Answer

Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result,

Correct AnswerverifiedShow Answer

Which of the following is correct? Inflation

Correct AnswerverifiedShow Answer

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Correct AnswerverifiedShow Answer

When deflation exists,

Correct AnswerverifiedShow Answer

In the last part of the 1800's

Correct AnswerverifiedShow Answer

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

Correct AnswerverifiedShow Answer

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an

Correct AnswerverifiedShow Answer

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When the money supply increases, there i...
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The after tax nominal interest...
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Higher inflation gives people ...
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