Question 1

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Accepted Answer

The answer of In the U.S., taxes are paid on...

Question 2

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 1 to MS2? A)  an increase in the value of money B)  a decrease in the price level C)  an open-market purchase of bonds by the Federal Reserve D)  the Federal Reserve sells bonds." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)   an increase in the value of money
B)   a decrease in the price level
C)   an open-market purchase of bonds by the Federal Reserve
D)   the Federal Reserve sells bonds.E) A) and C)
F) A) and B)

Question 3

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

Question 4

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A)   rises, because one unit of currency buys more ice cream cones.
B)   rises, because one unit of currency buys fewer ice cream cones.
C)   falls, because one unit of currency buys more ice cream cones.
D)   falls, because one unit of currency buys fewer ice cream cones.E) B) and C)
F) B) and D)

Question 5

For a given real interest rate, a decrease in the inflation rate would

Accepted Answer

A)   decrease the after-tax real interest rate and so decrease saving.
B)   decrease the after-tax real interest rate and so increase saving.
C)   increase the after-tax real interest rate and so decrease saving.
D)   increase the after-tax real interest rate and so increase saving.E) A) and C)
F) B) and C)

Question 6

Which of the following is not correct?

Accepted Answer

A)   The inflation rate is measured as the percentage change in a price index.
B)   For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent.
C)   During the 19th century there were long periods of falling prices in the U.S.
D)   Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.E) A) and B)
F) B) and D)

Question 7

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.E) A) and C)
F) C) and D)

Question 8

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Accepted Answer

A) True 
 B)False

Question 9

The quantity theory of money

Accepted Answer

A)   is a fairly recent addition to economic theory.
B)   can explain both moderate inflation and hyperinflation.
C)   argues that inflation is caused by too little money in the economy.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 10

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Accepted Answer

A)   1/4
B)   2
C)   4
D)   1E) A) and B)
F) None of the above

Question 11

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

Accepted Answer

A)   the price level
B)   nominal wages
C)   nominal GDP
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 12

Which of the following is accurate?

Accepted Answer

A)   Monetary policy is neutral in both the short run and the long run.
B)   Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
C)   Monetary policy has profound effects on real variables in both the short run and the long run.
D)   Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.E) B) and C)
F) C) and D)

Question 13

If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

Accepted Answer

A) True 
 B)False

Question 14

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Accepted Answer

A)   inflation-induced tax distortion.
B)   relative-price-variability cost.
C)   shoeleather cost.
D)   menu cost.E) A) and D)
F) All of the above

Question 15

The data on hyperinflation show a clear link between the quantity of money and

Accepted Answer

A)   the price level.
B)   growth rate of GDP.
C)   unemployment rate.
D)   velocity.E) None of the above
F) C) and D)

Question 16

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

Accepted Answer

A)   the money supply must have increased, perhaps because the Fed bought bonds.
B)   the money supply must have increased, perhaps because the Fed sold bonds.
C)   the money supply must have decreased, perhaps because the Fed bought bonds.
D)   the money supply must have decreased, perhaps because the Fed sold bonds.E) B) and C)
F) None of the above

Question 17

If the Fed increases the money supply, then 1/P

Accepted Answer

A)   falls, so the value of money falls.
B)   falls, so the value of money rises.
C)   rises, so the value of money falls.
D)   rises, so the value of money rises.E) All of the above
F) None of the above

Question 18

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Accepted Answer

fallen, mo...

Question 19

Open-market purchases by the Fed

Accepted Answer

A)   make the price level and value of money fall.
B)   make the price level rise, and make the value of money fall.
C)   make the price level and make the value of money rise.
D)   make the price level fall, and make the value of money rise.E) A) and C)
F) A) and D)

Question 20

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) None of the above
F) All of the above

Exam 22: Money Growth and Inflation

A reduction in the inflation rate would make relative prices

Correct AnswerverifiedShow Answer

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

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For a given real interest rate, a decrease in the inflation rate would

Correct AnswerverifiedShow Answer

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Correct AnswerverifiedShow Answer

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

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Which of the following is accurate?

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If inflation is higher than expected, then lenders receive interest payments whose real values are less than they expected.

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When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Correct Answerverifiedfallen, mo...View AnswerShow 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. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

In the late 1800's deflation caused farmers to suffer as the fall in crop prices reduced their income and thus their ability to pay off their debts.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose there is a surplus in the money market.

Correct AnswerverifiedShow Answer

Open-market purchases by the Fed

Correct AnswerverifiedShow Answer

If the Fed increases the money supply, then 1/P

Correct AnswerverifiedShow Answer

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Correct AnswerverifiedShow Answer

The quantity theory of money

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Correct AnswerverifiedShow Answer

The data on hyperinflation show a clear link between the quantity of money and

Correct AnswerverifiedShow Answer

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When the consumer price index increases, the value of your money has _. According to the quantity theory of money this is caused by an increase in the _.

Correct Answer
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fallen, mo...
View 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. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Correct Answer
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In the U.S., taxes are paid on one's _ gains/returns. Therefore, a _ inflation rate encourages more saving.

Correct Answer
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Correct Answer
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