Question 1

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Accepted Answer

A)   $50
B)   $75
C)   $100
D)   $200E) C) and D)
F) None of the above

Question 2

If the price level increased from 120 to 144, then what was the inflation rate?

Accepted Answer

A)   24 percent.
B)   25 percent.
C)   20 percent.
D)   17 percent.E) A) and B)
F) A) and C)

Question 3

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta...

Question 4

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) C) and D)
F) B) and D)

Question 5

When money is neutral, which of the following increases when the money supply growth rate increases?

Accepted Answer

A)   real output growth
B)   real interest rates
C)   nominal interest rates
D)   the money supply divided by the price levelE) A) and B)
F) A) and C)

Question 6

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold it for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after­tax gain? Hint: What's the real value of the land in current prices?)

Accepted Answer

The answer of Fifteen years ago your parents purchased some...

Question 7

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 8

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)   excess demand for money, so the price level will rise.
B)   excess demand for money, so the price level will fall.
C)   excess supply of money, so the price level will rise.
D)   excess supply of money, so the price level will fall.E) B) and C)
F) A) and D)

Question 9

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

nominal, r...

Question 10

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Accepted Answer

A)   The nominal interest rate was 10 percent and the inflation rate was 6 percent.
B)   The nominal interest rate was 6 percent and the inflation rate was 2 percent.
C)   The nominal interest rate was 4 percent and the inflation rate was 2 percent.
D)   The nominal interest rate was 10 percent and the inflation rate was 4 percent.E) A) and B)
F) A) and C)

Question 11

Velocity is computed as the

Accepted Answer

A)   price level times real GDP divided by the money supply.
B)   price level times the money supply divided by real GDP.
C)   real GDP times the money supply divided by the price level.
D)   real GDP times the money supply divided by the rate at which money changes hands.E) None of the above
F) B) and C)

Question 12

From the early 1980's through the 1990's, the nominal interest rate

Accepted Answer

A)   fell because the Fed got inflation under control.
B)   fell because the Fed let inflation get out of control.
C)   rose because the Fed got inflation under control.
D)   rose because the Fed let inflation get out of control.E) B) and C)
F) A) and D)

Question 13

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Accepted Answer

A)   increases the price level by more than 4 percent.
B)   increases the price level by 4 percent.
C)   increases the price level by less than 4 percent.
D)   increases real GDP by 4 percent.E) A) and C)
F) A) and B)

Question 14

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

Accepted Answer

A)   a nominal interest rate of 5 percent and an inflation rate of 4 percent.
B)   a nominal interest rate of 4 percent and an inflation rate of 3 percent.
C)   a nominal interest rate of 8 percent and an inflation rate of 1 percent.
D)   a nominal interest rate of 14 percent and an inflation rate of 2 percent.E) All of the above
F) A) and D)

Question 16

When the money market is drawn with the value of money on the vertical axis, the value of money 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.E) A) and D)
F) All of the above

Question 17

Hyperinflations are associated with governments printing money to finance expenditures.

Accepted Answer

A) True 
 B)False

Question 18

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Question 19

When the Consumer Price Index falls from 110 to 100

Accepted Answer

A)   there is inflation of 9.1% and the value of money decreases.
B)   there is deflation of 9.1% and the value of money increases.
C)   there is deflation of 10% and the value of money increases.
D)   there is inflation of 10% and the value of money decreases.E) A) and B)
F) A) and C)

Question 20

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Accepted Answer

A)   1.6 percent
B)   10 percent
C)   6.5 percent
D)   1.5 percentE) A) and B)
F) A) and C)

Exam 12: Money Growth and Inflation

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 Answer
verified
The after tax nominal interest...
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
verified

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct Answer
verified

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Correct Answer
verified

From the early 1980's through the 1990's, the nominal interest rate

Correct Answer
verified

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

Correct Answer
verified

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Correct Answer
verified

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Correct Answer
verified

Explain how inflation affects savings.

Correct Answer
verified
Inflation discourages savings. Income ta...
View Answer

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

Correct Answer
verified

Correct Answer
verified

Velocity is computed as the

Correct Answer
verified

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Correct Answer
verified

When money is neutral, which of the following increases when the money supply growth rate increases?

Correct Answer
verified

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

Correct Answer
verified
nominal, r...
View Answer

If the price level increased from 120 to 144, then what was the inflation rate?

Correct Answer
verified

Hyperinflations are associated with governments printing money to finance expenditures.

Correct Answer
verified

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Correct Answer
verified

When the Consumer Price Index falls from 110 to 100

Correct Answer
verified

Exam 12: Money Growth and Inflation

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

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

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Correct AnswerverifiedShow Answer

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Correct AnswerverifiedShow Answer

From the early 1980's through the 1990's, the nominal interest rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Correct AnswerverifiedShow Answer

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods.

Correct AnswerverifiedShow Answer

Explain how inflation affects savings.

Correct AnswerverifiedInflation discourages savings. Income ta...View AnswerShow Answer

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Velocity is computed as the

Correct AnswerverifiedShow Answer

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

Correct AnswerverifiedShow Answer

When money is neutral, which of the following increases when the money supply growth rate increases?

Correct AnswerverifiedShow Answer

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Correct Answerverifiednominal, r...View AnswerShow Answer

If the price level increased from 120 to 144, then what was the inflation rate?

Correct AnswerverifiedShow Answer

Hyperinflations are associated with governments printing money to finance expenditures.

Correct AnswerverifiedShow Answer

Monetary neutrality means that while real variables may change in response to changes in the money supply, nominal variables do not.

Correct AnswerverifiedShow Answer

When the Consumer Price Index falls from 110 to 100

Correct AnswerverifiedShow Answer

Correct Answer
verified
The after tax nominal interest...
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
verified

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Inflation discourages savings. Income ta...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

Correct Answer
verified
nominal, r...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified