Question 1

As the price level decreases, the value of money

Accepted Answer

A)  increases, so people want to hold more of it.
B)  increases, so people want to hold less of it.
C)  decreases, so people want to hold more of it.
D)  decreases, so people want to hold less of it.

Question 2

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

Accepted Answer

A)  either money demand or money supply shifts right.
B)  either money demand or money supply shifts left.
C)  money demand shifts right or money supply shifts left.
D)  money demand shifts left or money supply shifts right.

Question 3

Suppose there is a surplus in the money market.

Accepted Answer

A)  This could have been created by an increase in the money supply. The value of money will rise.
B)  This could have been created by an increase in the money supply. The value of money will fall.
C)  This could have been created by a decrease in the money supply. The value of money will rise.
D)  This could have been created by a decrease in the money supply. The value of money will fall.

Question 4

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.

Question 5

Higher inflation makes relative prices

Accepted Answer

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

Question 6

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A)  The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
B)  The dollar amount you pay is a real value. The number of goods you give up is a nominal value.
C)  Both the dollar amount you pay and the goods you give up are nominal values.
D)  Both the dollar amount you pay and the goods you give up are real values.

Question 7

According to the classical dichotomy, which of the following increases when the money supply increases?

Accepted Answer

A)  the real interest rate
B)  real GDP
C)  the real wage
D)  None of the above increases. D

Question 8

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.

Question 9

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 10

Nominal GDP measures

Accepted Answer

A)  the total quantity of final goods and services produced.
B)  the dollar value of the economy's output of final goods and services.
C)  the total income received from producing final goods and services measured in constant dollars.
D)  None of the above is correct. B

Question 11

If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

Accepted Answer

A)  the expected real interest rate is 11 percent.
B)  the expected real interest rate is 7 percent.
C)  the expected real interest rate is 4 percent.
D)  the expected real interest rate is 15 percent.

Question 12

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

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

Question 13

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. A

Question 14

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 2, then A) when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. B) when the money market is in equilibrium, one unit of goods and services sells for 33 cents. C) there is an excess demand for money if the value of money in terms of goods and services is 0.5. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS2, then

Accepted Answer

A)  when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services.
B)  when the money market is in equilibrium, one unit of goods and services sells for 33 cents.
C)  there is an excess demand for money if the value of money in terms of goods and services is 0.5.
D)  All of the above are correct.

Question 15

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Accepted Answer

A)  the price level and the value of money rise.
B)  the price level rises and the value of money falls.
C)  the price level falls and the value of money rises.
D)  the price level and the value of money fall.

Question 16

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)  6 percent
B)  5 percent
C)  1.5 percent
D)  1 percent

Question 17

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level lower?

Accepted Answer

A)  Y or V rise
B)  Y or V fall
C)  Y rises or V falls
D)  Y falls or V rises

Question 18

People can reduce the inflation tax by

Accepted Answer

A)  reducing savings.
B)  increasing deductions on their income tax.
C)  reducing cash holdings.
D)  None of the above is correct.

Question 19

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha...

Question 20

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)  spend more time looking for bargains.
B)  spend less time looking for bargains.
C)  hold more money.
D)  hold less money.

Exam 17: Money Growth and Inflation

As the price level decreases, the value of money

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

Correct AnswerverifiedShow Answer

Suppose there is a surplus in the money market.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Correct AnswerverifiedShow Answer

According to the classical dichotomy, which of the following increases when the money supply increases?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

Nominal GDP measures

Correct AnswerverifiedB

If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

Correct AnswerverifiedShow Answer

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she 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 AnswerverifiedA

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS2, then

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Correct AnswerverifiedShow Answer

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

Correct AnswerverifiedShow Answer

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level lower?

Correct AnswerverifiedShow Answer

People can reduce the inflation tax by

Correct AnswerverifiedShow Answer

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Correct AnswerverifiedThe inflation tax refers to the fact tha...View AnswerShow Answer

Shoeleather costs arise when higher inflation rates induce people to

Correct AnswerverifiedShow Answer

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D

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B

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A

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS₂, then

Correct Answer
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The inflation tax refers to the fact tha...
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