Question 1

If the money supply growth rate permanently increased from 5 percent to 30 percent, which of the following would we expect to happen to inflation?

Accepted Answer

A)  It would increase by more than 25 percentage points.
B)  It would increase by 25 percentage points.
C)  It would increase by less than 25 percentage points.
D)  It would decrease by more than 25 percentage points.E) None of the above
F) A) and B)

Question 2

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the long run effects of an increase in money supply?

Accepted Answer

A)  The price level and the quantity of money demanded increases.
B)  The price level increases, but the quantity of money demanded decreases.
C)  The price level decreases, but the quantity of money demanded increases.
D)  The price level and the quantity of money demanded decreases.E) A) and B)
F) None of the above

Question 3

Norbert purchased 10 shares of Gentech stock for $200 a share in year 1 and sold all the shares in year 2 for $220 a share. Between year 1 and year 2, the price index increased by 5 percent. The tax on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Norbert pay on his gain?

Accepted Answer

A)  $90
B)  $95
C)  $100
D)  $105E) A) and B)
F) B) and D)

Question 4

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following 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)

Question 5

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. Which of the following has happened to her real and nominal wage?

Accepted Answer

A)  Her real and nominal wages have risen.
B)  Her real and nominal wages have fallen.
C)  Her real wage has risen and her nominal wage has fallen.
D)  Her real wage has fallen and her nominal wage has risen.E) C) and D)
F) A) and B)

Question 6

Which of the following does nominal GDP measure?

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 in constant dollars
D)  the price levelE) All of the above
F) A) and D)

Question 7

When people use more resources to reduce their money holdings because of high inflation, this an example of which of the following?

Accepted Answer

A)  inflation-induced tax distortions
B)  relative-price variability costs
C)  shoeleather costs
D)  menu costsE) C) and D)
F) A) and C)

Question 8

If inflation is more than expected, how are creditors or debtors affected?

Accepted Answer

A)  Creditors receive a lower real interest rate than they had anticipated.
B)  Creditors pay a lower real interest rate than they had anticipated.
C)  Debtors receive a higher real interest rate than they had anticipated.
D)  Debtors pay a higher real interest rate than they had anticipated.E) A) and C)
F) A) and D)

Question 9

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Accepted Answer

We must suppose that V is rela...

Question 10

Which of the following is an effect of expected inflation?

Accepted Answer

A)  It does not affect the purchasing power of most workers.
B)  It increases the incentive to save.
C)  It benefits lenders and borrowers.
D)  It changes real interest rates because of the Fischer effect.E) A) and B)
F) All of the above

Question 11

When does the supply of money increase?

Accepted Answer

A)  when the value of money increases
B)  when the price level decreases
C)  when the Bank of Canada makes open-market purchases
D)  when the Bank of Canada increases the bank rateE) All of the above
F) B) and C)

Question 12

According to the quantity equation, if V and M are constant, and Y doubles, which of the following will happen to the price level?

Accepted Answer

A)  It will fall to half its original level.
B)  It will not change.
C)  It will double.
D)  It will more than double.E) A) and C)
F) A) and B)

Question 13

Given a nominal interest rate of 10 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Accepted Answer

A)  Inflation is 6 percent, and the tax rate is 20 percent.
B)  Inflation is 5 percent, and the tax rate is 30 percent.
C)  Inflation is 4 percent, and the tax rate is 40 percent.
D)  Inflation is 2 percent, and the tax rate is 50 percent.E) A) and B)
F) A) and C)

Exam 11: Money Growth and Inflation

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

Correct Answer
verified

When does the supply of money increase?

Correct Answer
verified

If the money supply growth rate permanently increased from 5 percent to 30 percent, which of the following would we expect to happen to inflation?

Correct Answer
verified

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the long run effects of an increase in money supply?

Correct Answer
verified

Which of the following does nominal GDP measure?

Correct Answer
verified

According to the quantity equation, if V and M are constant, and Y doubles, which of the following will happen to the price level?

Correct Answer
verified

When people use more resources to reduce their money holdings because of high inflation, this an example of which of the following?

Correct Answer
verified

If inflation is more than expected, how are creditors or debtors affected?

Correct Answer
verified

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. Which of the following has happened to her real and nominal wage?

Correct Answer
verified

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Correct Answer
verified
We must suppose that V is rela...
View Answer

Which of the following is an effect of expected inflation?

Correct Answer
verified

Correct Answer
verified

Given a nominal interest rate of 10 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Correct Answer
verified

Exam 11: Money Growth and Inflation

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

Correct AnswerverifiedShow Answer

When does the supply of money increase?

Correct AnswerverifiedShow Answer

If the money supply growth rate permanently increased from 5 percent to 30 percent, which of the following would we expect to happen to inflation?

Correct AnswerverifiedShow Answer

When the money market is depicted in a diagram with the value of money on the vertical axis, which of the following best describes the long run effects of an increase in money supply?

Correct AnswerverifiedShow Answer

Which of the following does nominal GDP measure?

Correct AnswerverifiedShow Answer

According to the quantity equation, if V and M are constant, and Y doubles, which of the following will happen to the price level?

Correct AnswerverifiedShow Answer

When people use more resources to reduce their money holdings because of high inflation, this an example of which of the following?

Correct AnswerverifiedShow Answer

If inflation is more than expected, how are creditors or debtors affected?

Correct AnswerverifiedShow Answer

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. Which of the following has happened to her real and nominal wage?

Correct AnswerverifiedShow Answer

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

Correct AnswerverifiedWe must suppose that V is rela...View AnswerShow Answer

Which of the following is an effect of expected inflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 10 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
We must suppose that V is rela...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified