Question 1

Over the past 70 years,what was the approximate average annual inflation rate?

Accepted Answer

A)   3 percent,implying that prices have increased 12-fold
B)   4 percent,implying that prices have increased 16-fold
C)   4 percent,implying that prices have increased 18-fold
D)   5 percent,implying that prices increased about 18-fold

Question 2

Figure 11-1 
-Refer to the Figure 11-1.If the money supply is MS2 and the value of money is 2,how much is the excess demand or supply?

Accepted Answer

A)   There is an excess demand equal to the distance between A and C.
B)   There is an excess demand equal to the distance between A and B.
C)   There is an excess supply equal to the distance between A and C.
D)   There is an excess supply equal to the distance between A and B.

Question 3

When the money market is drawn with the value of money on the vertical axis,in which situation 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 right

Question 4

According to the classical dichotomy,when the money supply doubles,what also double(s) ?

Accepted Answer

A)   employment
B)   nominal interest rates
C)   real interest rates
D)   the price level

Question 5

In order to maintain stable prices,what must the central bank do?

Accepted Answer

A)   maintain low interest rates
B)   keep unemployment low
C)   tightly control the money supply
D)   sell indexed bonds

Question 6

Which statement best explains why governments may prefer an inflation tax to some other kind of tax?

Accepted Answer

A)   The inflation tax is easier to impose.
B)   The inflation tax reduces inflation.
C)   The inflation tax falls mainly on high-income individuals.
D)   The inflation tax reduces the real cost of government expenditure.

Question 7

Which statement best describes the inflation tax?

Accepted Answer

A)   It is an income tax.
B)   It is a sales tax.
C)   It is the revenue created when the government prints money.
D)   It is the revenue created when inflation is low.

Question 8

When the value of money is on the vertical axis,the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 9

Casimir purchased one share of Norcet stock for $100 in year 1 and sold that share in year 2 for $200.The inflation rate between year 1 and year 2 was 50 percent.If the capital gains tax is imposed at a rate of 50 percent,what is Casimir's after-tax real capital gain?

Accepted Answer

A)   $0
B)   $50
C)   $100
D)   $200

Question 10

Alina pays $25 for craft supplies she purchases at the Bargainrama discount store.Which statement accurately identifies the types of variables involved?

Accepted Answer

A)   The $25 is a real variable; the craft supplies is a nominal variable.
B)   The $25 is a nominal variable; the craft supplies is a real variable.
C)   Both the $25 and the craft supplies are nominal variables.
D)   Both the $25 and the craft supplies are real variables.

Question 11

According to the quantity equation,if Y and M are constant and V doubles,what factor does the price level multiply by?

Accepted Answer

A)   1 / 4
B)   1 / 2
C)   1
D)   2

Question 12

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.

Accepted Answer

A) True 
 B)False

Question 13

When does the supply of money increase?

Accepted Answer

A)   when the Bank of Canada increases the overnight rate
B)   when the Bank of Canada makes open-market sales
C)   when the Bank of Canada makes open-market purchases
D)   when the Bank of Canada increases the bank rate

Question 14

Suppose that velocity and output are constant,the quantity theory and Fisher effect are correct,the nominal interest rate is 7 percent,and money growth is 3 percent.Which statement is consistent with these facts?

Accepted Answer

A)   The real interest rate is 3 percent,and nominal wages are rising.
B)   The real interest rate is 3 percent,and real wages are rising.
C)   The real interest rate is 4 percent,and nominal wages are rising.
D)   The real interest rate is 10 percent,and real wages are rising.

Question 15

Given a nominal interest rate of 12 percent,when would you earn the highest after-tax real interest rate?

Accepted Answer

A)   Inflation is 2 percent,and the tax rate is 50 percent.
B)   Inflation is 3 percent,and the tax rate is 30 percent.
C)   Inflation is 5 percent,and the tax rate is 20 percent.
D)   Inflation is 6 percent,and the tax rate is 40 percent.

Question 16

Arnold puts money into an account.One year later,he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods.Which of the following is consistent with these facts?

Accepted Answer

A)   The nominal interest rate was 7 percent,and the inflation rate was 4 percent.
B)   The nominal interest rate was 7 percent,and the inflation rate was 3 percent.
C)   The nominal interest rate was 10 percent,and the inflation rate was -4 percent.
D)   The nominal interest rate was 4 percent,and the inflation rate was -3 percent.

Question 17

According to the classical dichotomy,what is NOT influenced by monetary factors?

Accepted Answer

A)   the price level
B)   real GDP
C)   nominal interest rates
D)   nominal GDP

Question 18

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings.Income tax...

Question 19

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

Accepted Answer

A)   Printing money causes the value of money to rise.
B)   Printing money imposes a tax on everyone who holds money.
C)   Printing money increases the real interest rate.
D)   Printing money lowers the velocity of money.

Question 20

Which of the following does an increase in the money supply growth rate increase?

Accepted Answer

A)   inflation,nominal interest rates,and real interest rates
B)   inflation and nominal interest rates,but it does not change real interest rates
C)   inflation and real interest rates,but it does not change nominal interest rates
D)   nominal and real interest rates,but it does not change inflation

Exam 11: Money Growth and Inflation

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.

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Alina pays $25 for craft supplies she purchases at the Bargainrama discount store.Which statement accurately identifies the types of variables involved?

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According to the quantity equation,if Y and M are constant and V doubles,what factor does the price level multiply by?

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Explain how inflation affects savings.

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

Which statement best explains why governments may prefer an inflation tax to some other kind of tax?

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Casimir purchased one share of Norcet stock for $100 in year 1 and sold that share in year 2 for $200.The inflation rate between year 1 and year 2 was 50 percent.If the capital gains tax is imposed at a rate of 50 percent,what is Casimir's after-tax real capital gain?

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Arnold puts money into an account.One year later,he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods.Which of the following is consistent with these facts?

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 12 percent,when would you earn the highest after-tax real interest rate?

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In order to maintain stable prices,what must the central bank do?

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Which statement best describes the inflation tax?

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Which of the following does an increase in the money supply growth rate increase?

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Suppose that velocity and output are constant,the quantity theory and Fisher effect are correct,the nominal interest rate is 7 percent,and money growth is 3 percent.Which statement is consistent with these facts?

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Figure 11-1 -Refer to the Figure 11-1.If the money supply is MS2 and the value of money is 2,how much is the excess demand or supply?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the classical dichotomy,when the money supply doubles,what also double(s) ?

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According to the classical dichotomy,what is NOT influenced by monetary factors?

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

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis,the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Correct AnswerverifiedShow Answer

Over the past 70 years,what was the approximate average annual inflation rate?

Correct AnswerverifiedShow Answer

When does the supply of money increase?

Correct AnswerverifiedShow Answer

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Inflation discourages savings.Income tax...
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