Question 1

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.

Question 2

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Accepted Answer

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

Question 3

Money demand refers to

Accepted Answer

A)   the total quantity of financial assets that people want to hold.
B)   how much income people want to earn per year.
C)   how much wealth people want to hold in liquid form.
D)   how much currency the Federal Reserve decides to print.

Question 4

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)   $200

Question 5

Banks advertise

Accepted Answer

A)   the real interest rate, which is how fast the dollar value of savings grows.
B)   the real interest rate, which is how fast the purchasing power of savings grows.
C)   the nominal interest rate, which is how fast the dollar value of savings grows.
D)   the nominal interest rate, which is how fast the purchasing power of savings grows.

Question 6

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A)   Steve had both the higher before-tax real gain and the higher after-tax real gain.
B)   Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
C)   Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain.
D)   Stephanie had both the higher before-tax real gain and the higher after-tax real gain.

Question 7

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 8

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Accepted Answer

A)   $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars.
B)   $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars.
C)   20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.
D)   20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

Question 9

The velocity of money is

Accepted Answer

A)   the rate at which the Fed puts money into the economy.
B)   the same thing as the long-term growth rate of the money supply.
C)   the money supply divided by nominal GDP.
D)   the average number of times per year a dollar is spent.

Question 10

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through a(n) _____ in the price level.

Accepted Answer

The answer of When the Federal Reserve injects money into...

Question 11

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 who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
D)   All of the above are correct.

Question 12

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if:
a. the Fed increases the money supply.
b. people decide to demand less money at each value of money.

Accepted Answer

a. The Fed increases the money supply. W...

Question 13

In the U.S., people are required to pay taxes on

Accepted Answer

A)   nominal interest earnings, irrespective of their real interest earnings.
B)   real interest earnings, irrespective of their nominal interest earnings.
C)   real capital gains, irrespective of their nominal capital gains.
D)   All of the above are correct.

Question 14

Wealth is redistributed from creditors to debtors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.

Question 15

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Accepted Answer

A) True 
 B)False

Question 16

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Accepted Answer

A)   6 times its old value.
B)   3 times its old value.
C)   1.5 times its old value.
D)   0.75 times its old value

Question 17

Higher inflation makes relative prices

Accepted Answer

A)   more variable, making it more likely that resources will be allocated to their best use.
B)   more variable, making it less likely that resources will be allocated to their best use.
C)   less variable, making it more likely that resources will be allocated to their best use.
D)   less variable, making it less likely that resources will be allocated to their best use.

Question 18

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who save than for those who borrow.
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 those who are paid a fixed nominal wage.
D)   for savers in low income tax brackets than for savers in high income tax brackets.

Question 19

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Accepted Answer

The answer of According to the quantity theory of money,...

Question 20

In the long run, money demand and money supply determine

Accepted Answer

A)   the price level and the real interest rate.
B)   the price level but not the real interest rate.
C)   the real interest rate but not the price level.
D)   neither the price level nor the real interest rate.

Exam 30: Money Growth and Inflation

In the long run, money demand and money supply determine

Correct Answer
verified

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Correct Answer
verified

In the U.S., people are required to pay taxes on

Correct Answer
verified

Higher inflation makes relative prices

Correct Answer
verified

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct Answer
verified

High and unexpected inflation has a greater cost

Correct Answer
verified

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Correct Answer
verified
a. The Fed increases the money supply. W...
View Answer

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
verified

When the Federal Reserve injects money into the banking system, it initially causes an excess _ of money. Equilibrium in the money market is reestablished through a(n) _ in the price level.

Correct Answer
verified

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct Answer
verified

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Correct Answer
verified

The velocity of money is

Correct Answer
verified

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

Correct Answer
verified

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 Answer
verified

Banks advertise

Correct Answer
verified

High and unexpected inflation has a greater cost

Correct Answer
verified

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

Money demand refers to

Correct Answer
verified

Exam 30: Money Growth and Inflation

In the long run, money demand and money supply determine

Correct AnswerverifiedShow Answer

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

Correct AnswerverifiedShow Answer

In the U.S., people are required to pay taxes on

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Fed increases the money supply. b. people decide to demand less money at each value of money.

Correct Answerverifieda. The Fed increases the money supply. W...View AnswerShow Answer

According to the quantity theory of money, an increase in the money supply causes the price level to _____ and the value of money to _____.

Correct AnswerverifiedShow Answer

When the Federal Reserve injects money into the banking system, it initially causes an excess _____ of money. Equilibrium in the money market is reestablished through a(n) _____ in the price level.

Correct AnswerverifiedShow Answer

Wealth is redistributed from creditors to debtors when inflation was expected to be

Correct AnswerverifiedShow Answer

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

Correct AnswerverifiedShow Answer

The velocity of money is

Correct AnswerverifiedShow Answer

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

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

Banks advertise

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

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

Money demand refers to

Correct AnswerverifiedShow Answer

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a. The Fed increases the money supply. W...
View Answer

According to the quantity theory of money, an increase in the money supply causes the price level to _ and the value of money to _.

Correct Answer
verified

When the Federal Reserve injects money into the banking system, it initially causes an excess _ of money. Equilibrium in the money market is reestablished through a(n) _ in the price level.

Correct Answer
verified

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