Question 1

Assume you buy stock and its price rises just as much as the price level.Before taxes,which of the following have you made?

Accepted Answer

A)  a nominal and real gain, but you pay taxes only on the nominal gain
B)  a nominal and real gain, but you pay taxes only on the real gain
C)  a nominal gain, but no real gain, yet you pay taxes on the nominal gain
D)  a nominal gain, but no real gain, so you pay no taxes on the nominal gainE) All of the above
F) A) and B)

Question 2

Greta puts money in a savings account at her bank,earning 6.5 percent.One year later,she takes her money out and notes that while her money was earning interest,prices rose 3.5 percent.How has the amount of goods Greta can buy changed one year later?

Accepted Answer

A)  Greta can buy 6.5 percent more goods.
B)  Greta can buy 6.5 percent less goods.
C)  Greta can buy 3 percent more goods.
D)  Greta can buy 3 percent less goods.E) A) and B)
F) B) and C)

Question 3

In the 14th century,the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold,which was in use as a medium of exchange.Which of the following would we predict this increase in gold would do to the price level and value of gold in Cairo?

Accepted Answer

A)  raise both the price level and the value of gold in Cairo
B)  raise the price level, but decrease the value of gold in Cairo
C)  lower the price level, but increase the value of gold in Cairo
D)  lower both the price level and the value of gold in CairoE) A) and B)
F) A) and C)

Question 4

When deciding how much to save,what interest rates do people usually care most about?

Accepted Answer

A)  after-tax nominal interest rates
B)  after-tax real interest rates
C)  before-tax real interest rates
D)  before-tax nominal interest ratesE) A) and C)
F) None of the above

Question 5

Which of the following is the immediate and longer-term effect of a decrease in the money supply?

Accepted Answer

A)  A decrease in the money supply creates an excess supply of money that is eliminated by rising prices.
B)  A decrease in the money supply creates an excess supply of money that is eliminated by falling prices.
C)  A decrease in the money supply creates an excess demand for money that is eliminated by rising prices.
D)  A decrease in the money supply creates an excess demand for money that is eliminated by falling prices.E) C) and D)
F) A) and B)

Question 6

The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Accepted Answer

A) True 
 B)False

Question 7

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following events took place in the early 1920s in Germany?

Accepted Answer

A)  deflation that proved detrimental to farmers
B)  an aversion to inflation by policymakers that kept wages stagnant
C)  an unexpected drop in inflation that hurt borrowers
D)  an extraordinarily high rate of inflationE) All of the above
F) None of the above

Question 9

Your boss gives you an increase in the number of dollars you earn per hour.How does this change your nominal and real wages?

Accepted Answer

A)  This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
B)  This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
C)  This increase in pay makes your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
D)  This increase in pay makes your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.E) A) and D)
F) B) and C)

Question 10

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis,draw a money demand curve and explain its shape.Do the same for the money supply curve.

Accepted Answer

See Figure 11.1 on page 249 in the textb...

Question 11

When the money market is drawn with the value of money on the vertical axis,in which of the following situations does the price level increase?

Accepted Answer

A)  if either money demand or money supply shifts right
B)  if either money demand or money supply shifts left
C)  if money demand shifts right or money supply shifts left
D)  if money demand shifts left or money supply shifts rightE) B) and C)
F) A) and C)

Question 12

If your salary increased by 7 percent and prices increased by 4 percent,how much did your real wage rise by?

Accepted Answer

A)  3 percent
B)  4 percent
C)  6 percent
D)  7 percentE) C) and D)
F) B) and C)

Question 13

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Accepted Answer

A)  Debtors and creditors would both have reduced real wealth.
B)  Debtors and creditors would both have increased real wealth.
C)  Debtors would gain at the expense of creditors.
D)  Creditors would gain at the expense of debtors.E) A) and B)
F) A) and C)

Question 14

According to the classical dichotomy,which of the following is influenced by monetary factors?

Accepted Answer

A)  real GDP
B)  unemployment
C)  nominal interest rates
D)  the real wage rateE) B) and C)
F) A) and B)

Question 15

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 16

What do shoeleather costs refer to?

Accepted Answer

A)  the cost of more frequent price changes induced by higher inflation
B)  the distortion in resource allocation created by distortions in relative prices due to inflation
C)  resources used to maintain lower money holdings when inflation is high
D)  the distortion in incentives created by inflation by taxes that do not adjust for inflationE) A) and C)
F) A) and B)

Question 17

In this problem we try to establish a link between the quantity equation,MᵈV = PY,and the money demand-money supply diagram (Mᵈ is the quantity of money demanded).In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded,draw the Mᵈ - P curve that is implied by the quantity equation.

Accepted Answer

The quantity equation can be written und...

Question 18

If the money supply growth rate permanently increased from 5 percent to 30 percent,what 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) C) and D)
F) B) and C)

Question 19

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 20

When a graph of the money market is drawn with the value of money on the vertical axis,which of the following will happen if the value of money is below the equilibrium level?

Accepted Answer

A)  The price level will rise.
B)  The value of money will rise.
C)  Money demand will shift left.
D)  Money demand will shift right.E) None of the above
F) A) and B)

Exam 11: Money Growth and Inflation

When deciding how much to save,what interest rates do people usually care most about?

Correct Answer
verified

If your salary increased by 7 percent and prices increased by 4 percent,how much did your real wage rise by?

Correct Answer
verified

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Correct Answer
verified

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Correct Answer
verified

Correct Answer
verified
The quantity equation can be written und...
View Answer

Your boss gives you an increase in the number of dollars you earn per hour.How does this change your nominal and real wages?

Correct Answer
verified

Greta puts money in a savings account at her bank,earning 6.5 percent.One year later,she takes her money out and notes that while her money was earning interest,prices rose 3.5 percent.How has the amount of goods Greta can buy changed one year later?

Correct Answer
verified

Which of the following events took place in the early 1920s in Germany?

Correct Answer
verified

Which of the following is the immediate and longer-term effect of a decrease in the money supply?

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis,in which of the following situations does the price level increase?

Correct Answer
verified

Assume you buy stock and its price rises just as much as the price level.Before taxes,which of the following have you made?

Correct Answer
verified

When a graph of the money market is drawn with the value of money on the vertical axis,which of the following will happen if the value of money is below the equilibrium level?

Correct Answer
verified

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Correct Answer
verified

According to the classical dichotomy,which of the following is influenced by monetary factors?

Correct Answer
verified

What do shoeleather costs refer to?

Correct Answer
verified

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis,draw a money demand curve and explain its shape.Do the same for the money supply curve.

Correct Answer
verified
See Figure 11.1 on page 249 in the textb...
View Answer

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

Correct Answer
verified

In the 14th century,the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold,which was in use as a medium of exchange.Which of the following would we predict this increase in gold would do to the price level and value of gold in Cairo?

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

The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct Answer
verified

Exam 11: Money Growth and Inflation

When deciding how much to save,what interest rates do people usually care most about?

Correct AnswerverifiedShow Answer

If your salary increased by 7 percent and prices increased by 4 percent,how much did your real wage rise by?

Correct AnswerverifiedShow Answer

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Correct AnswerverifiedShow Answer

Even though monetary policy is neutral in the short run,it may have profound real effects in the long run.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe quantity equation can be written und...View AnswerShow Answer

Your boss gives you an increase in the number of dollars you earn per hour.How does this change your nominal and real wages?

Correct AnswerverifiedShow Answer

Greta puts money in a savings account at her bank,earning 6.5 percent.One year later,she takes her money out and notes that while her money was earning interest,prices rose 3.5 percent.How has the amount of goods Greta can buy changed one year later?

Correct AnswerverifiedShow Answer

Which of the following events took place in the early 1920s in Germany?

Correct AnswerverifiedShow Answer

Which of the following is the immediate and longer-term effect of a decrease in the money supply?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,in which of the following situations does the price level increase?

Correct AnswerverifiedShow Answer

Assume you buy stock and its price rises just as much as the price level.Before taxes,which of the following have you made?

Correct AnswerverifiedShow Answer

When a graph of the money market is drawn with the value of money on the vertical axis,which of the following will happen if the value of money is below the equilibrium level?

Correct AnswerverifiedShow Answer

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Correct AnswerverifiedShow Answer

According to the classical dichotomy,which of the following is influenced by monetary factors?

Correct AnswerverifiedShow Answer

What do shoeleather costs refer to?

Correct AnswerverifiedShow Answer

Use a money supply and demand diagram to answer the following problem: In a diagram having the value of money on the vertical axis and the quantity of money on the horizontal axis,draw a money demand curve and explain its shape.Do the same for the money supply curve.

Correct AnswerverifiedSee Figure 11.1 on page 249 in the textb...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In the 14th century,the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold,which was in use as a medium of exchange.Which of the following would we predict this increase in gold would do to the price level and value of gold in Cairo?

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

The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The quantity equation can be written und...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
See Figure 11.1 on page 249 in the textb...
View Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified