Question 1

High and unexpected inflation has a greater cost

Accepted Answer

A)  for those who borrow than for those who save.
B)  for those who hold a little money than for those who hold a lot of money.
C)  for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage.
D)  for savers in high income tax brackets than for savers in low income tax brackets.E) A) and B)
F) A) and C)

Question 2

Shoeleather costs and menu costs are both costs of anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 3

When inflation causes relative-price variability,

Accepted Answer

A)  consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
B)  consumer decisions are distorted, but markets are still able to efficiently allocate factors of production.
C)  consumer decisions are not distorted, but the ability of markets to efficiently allocate factors of production is impaired.
D)  consumer decisions are not distorted and markets are still able to efficiently allocate factors of production.E) B) and C)
F) A) and B)

Question 4

Printing money to finance government expenditures

Accepted Answer

A)  causes the value of money to rise.
B)  imposes a tax on everyone who holds money.
C)  is the principal method by which the U.S. government finances its expenditures.
D)  None of the above is correct.E) B) and D)
F) None of the above

Question 5

If P denotes the price of goods and services measured in terms of money, then

Accepted Answer

A)  1/P represents the value of money measured in terms of goods and services.
B)  P can be regarded as the "overall price level."
C)  an increase in the value of money is associated with a decrease in P.
D)  All of the above are correct.E) A) and C)
F) B) and C)

Question 6

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When the Fed sells government bonds, th...

Question 7

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  1.2 percent
B)  2.8 percent
C)  4.8 percent
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 8

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Accepted Answer

A) True 
 B)False

Question 9

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Accepted Answer

A)  and a price index are both real variables.
B)  and a price index are both nominal variables.
C)  are real variables, and a price index is a nominal variable.
D)  are nominal variables, and a price index is a real variableE) None of the above
F) B) and D)

Question 10

The shoeleather cost of inflation refers to

Accepted Answer

A)  the redistributional effects of unexpected inflation.
B)  the time spent searching for low prices when inflation rises.
C)  the waste of resources used to maintain lower money holdings.
D)  the increased cost to the government of printing more money.E) B) and C)
F) A) and B)

Question 11

The source of hyperinflations is primarily

Accepted Answer

A)  lower output growth.
B)  continuing declines in velocity.
C)  increases in money-supply growth.
D)  continuing increases in money demand.E) None of the above
F) B) and D)

Question 12

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Accepted Answer

A) True 
 B)False

Question 13

Relative-price variability is "automatic" when

Accepted Answer

A)  firms change prices only once in a while.
B)  firms change prices often.
C)  people increase the frequency of their trips to the bank.
D)  people decrease the frequency of their trips to the bank.E) All of the above
F) A) and D)

Question 14

If velocity and output were nearly constant, then

Accepted Answer

A)  the inflation rate would be much higher than the money supply growth rate.
B)  the inflation rate would be about the same as the money supply growth rate.
C)  the inflation rate would be much lower than the money supply growth rate.
D)  any of the above would be possible.E) All of the above
F) A) and B)

Question 15

Figure 17-3. 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) None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-3. 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)  None of the above is correct.E) A) and D)
F) All of the above

Question 16

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Accepted Answer

A) True 
 B)False

Question 17

During the recent financial crisis velocity decreased. This means that the rate at which money changed hands

Accepted Answer

A)  decreased. Other things the same, a decrease in velocity decreases the price level.
B)  decreased. Other things the same, a decrease in velocity increases the price level.
C)  increased. Other things the same, an increase in velocity decreases the price level.
D)  increased. Other things the same, an increase in velocity increases the price level.E) All of the above
F) C) and D)

Question 18

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Accepted Answer

Inflation has raised the general price l...

Question 19

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Accepted Answer

A) True 
 B)False

Question 20

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Accepted Answer

A)  movement to the right along the money demand curve.
B)  movement to the left along the money demand curve.
C)  shift to the right of the money supply curve.
D)  shift to the left of the money supply curve.E) All of the above
F) A) and B)

Exam 17: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Correct AnswerverifiedShow Answer

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system, and real variables are not.

Correct AnswerverifiedShow Answer

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Correct AnswerverifiedInflation has raised the general price l...View AnswerShow Answer

Suppose the Fed sells government bonds. Use a graph of the money market to show what this does to the value of money.

Correct Answerverified When the Fed sells government bonds, th...View AnswerShow Answer

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

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According to the Fisher effect, if inflation rises then the nominal interest rate rises.

Correct AnswerverifiedShow Answer

If velocity and output were nearly constant, then

Correct AnswerverifiedShow Answer

If P denotes the price of goods and services measured in terms of money, then

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis, the money supply curve is vertical and shifts right if the Federal Reserve buys bonds.

Correct AnswerverifiedShow Answer

Relative-price variability is "automatic" when

Correct AnswerverifiedShow Answer

Printing money to finance government expenditures

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

The source of hyperinflations is primarily

Correct AnswerverifiedShow Answer

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. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Correct AnswerverifiedShow Answer

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

Correct AnswerverifiedShow Answer

When inflation causes relative-price variability,

Correct AnswerverifiedShow Answer

The shoeleather cost of inflation refers to

Correct AnswerverifiedShow Answer

During the recent financial crisis velocity decreased. This means that the rate at which money changed hands

Correct AnswerverifiedShow Answer

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Shoeleather costs and menu costs are both costs of anticipated inflation.

Correct AnswerverifiedShow Answer

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Inflation has raised the general price l...
View Answer

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When the Fed sells government bonds, th...
View Answer

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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. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?

Correct Answer
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