Question 1

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

Accepted Answer

A)   Only real interest earnings would be taxed.
B)   The tax burden on capital gains would increase.
C)   Average tax rates would increase.
D)   Investors would be worse off.E) A) and B)
F) A) and C)

Question 2

According to the quantity equation, if V and M are constant and Y doubles, what 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) B) and C)
F) A) and B)

Question 3

What does the evidence gained from studying hyperinflation indicate?

Accepted Answer

A)   The rate of inflation is not closely related to the rate at which the money supply changes.
B)   Nominal interest rates are independent of the money supply.
C)   Inflation rates parallel money supply growth rates.
D)   Inflation rates move in the opposite direction as the growth rate in money supply.E) A) and D)
F) B) and D)

Question 4

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Accepted Answer

A) True 
 B)False

Question 5

When and where did hyperinflation occur?

Accepted Answer

A)   during 1880-1896 in the United States
B)   in post-World War I Germany
C)   during the 1970s in Canada
D)   during 1930-1933 in the United StatesE) A) and B)
F) A) and C)

Question 6

Since 1992, at what level has the Bank of Canada successfully maintained the inflation rate?

Accepted Answer

A)   1 percent
B)   2 percent
C)   3 percent
D)   4 percentE) A) and B)
F) None of the above

Question 7

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

Accepted Answer

When the Bank of Canada sells governmen...

Question 8

When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   a decrease in real GDP
D)   an increase in real GDPE) A) and B)
F) None of the above

Question 9

What type of variable is the price level?

Accepted Answer

A)   quantitative
B)   controlled
C)   real
D)   nominalE) C) and D)
F) A) and D)

Question 10

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?

Accepted Answer

A)   The quantity of money demanded increases.
B)   The quantity of money demanded decreases.
C)   The quantity of money supplied increases.
D)   The quantity of money supplied decreases.E) A) and B)
F) None of the above

Question 11

Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. 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) All of the above
F) B) and C)

Question 12

According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?

Accepted Answer

A)   nominal GDP
B)   the price level
C)   labour productivity
D)   the nominal wage rateE) None of the above
F) A) and D)

Question 13

Given a nominal interest rate of 7 percent, in which of the following cases would you earn the lowest after-tax real interest rate?

Accepted Answer

A)   Inflation is 1 percent, and the tax rate is 10 percent.
B)   Inflation is 2 percent, and the tax rate is 15 percent.
C)   Inflation is 3 percent, and the tax rate is 20 percent.
D)   Inflation is 4 percent, and the tax rate is 25 percent.E) A) and B)
F) A) and C)

Question 14

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 15

What does the shoe leather cost of inflation refer to?

Accepted Answer

A)   the fall in real income associated with 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 moneyE) None of the above
F) A) and B)

Question 16

Which statement best describes the effect of printing money to finance government expenditures on the Canadian economy?

Accepted Answer

A)   It accounts for 10 percent of government revenue.
B)   It accounts for less than 1 percent of government revenue.
C)   Printing money imposes a tax on net borrowers.
D)   Printing money causes the nominal interest rate to decrease.E) All of the above
F) None of the above

Question 17

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

Accepted Answer

Inflation raised the general price level...

Question 18

The money supply in Freedonia is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Freedonia has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 20 percent this year, how will the central bank of Freedonia change the money supply this year?

Accepted Answer

A)   It will not change the money supply at all.
B)   It will reduce the money supply by 20 percent.
C)   It will increase the money supply by 20 percent.
D)   It will increase the money supply by 2.0 percent.E) B) and C)
F) A) and D)

Question 19

Which of the following best defines menu costs?

Accepted Answer

A)   resources used by people to maintain lower money holdings when inflation is high
B)   costs associated with resource misallocation.
C)   the distortion in incentives created by inflation when taxes do not adjust for inflation
D)   the cost of more frequent price changes induced by higher inflationE) None of the above
F) B) and C)

Question 20

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

Exam 11: Money Growth and Inflation

When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right?

Correct Answer
verified

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

Correct Answer
verified

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Correct Answer
verified

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

Correct Answer
verified

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

Correct Answer
verified

When and where did hyperinflation occur?

Correct Answer
verified

Given a nominal interest rate of 7 percent, in which of the following cases would you earn the lowest after-tax real interest rate?

Correct Answer
verified

Which of the following best defines menu costs?

Correct Answer
verified

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

Correct Answer
verified

When the Bank of Canada sells governmen...
View Answer

What does the shoe leather cost of inflation refer to?

Correct Answer
verified

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?

Correct Answer
verified

What does the evidence gained from studying hyperinflation indicate?

Correct Answer
verified

Correct Answer
verified

What type of variable is the price level?

Correct Answer
verified

Which statement best describes the effect of printing money to finance government expenditures on the Canadian economy?

Correct Answer
verified

Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How does this change your nominal and real wages?

Correct Answer
verified

Since 1992, at what level has the Bank of Canada successfully maintained the inflation rate?

Correct Answer
verified

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

Correct Answer
verified
Inflation raised the general price level...
View Answer

According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?

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

Exam 11: Money Growth and Inflation

When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Correct AnswerverifiedShow Answer

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

Correct AnswerverifiedShow Answer

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

Correct AnswerverifiedShow Answer

When and where did hyperinflation occur?

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 7 percent, in which of the following cases would you earn the lowest after-tax real interest rate?

Correct AnswerverifiedShow Answer

Which of the following best defines menu costs?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedWhen the Bank of Canada sells governmen...View AnswerShow Answer

What does the shoe leather cost of inflation refer to?

Correct AnswerverifiedShow Answer

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?

Correct AnswerverifiedShow Answer

What does the evidence gained from studying hyperinflation indicate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What type of variable is the price level?

Correct AnswerverifiedShow Answer

Which statement best describes the effect of printing money to finance government expenditures on the Canadian economy?

Correct AnswerverifiedShow Answer

Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How does this change your nominal and real wages?

Correct AnswerverifiedShow Answer

Since 1992, at what level has the Bank of Canada successfully maintained the inflation rate?

Correct AnswerverifiedShow Answer

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

Correct AnswerverifiedInflation raised the general price level...View AnswerShow Answer

According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?

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 Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the Bank of Canada sells governmen...
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
Inflation raised the general price level...
View Answer

Correct Answer
verified

Correct Answer
verified