Exam 30: Money Growth and Inflation

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Explain how inflation affects savings.

Figure 30-1 -Refer to Figure 30-1. When the money supply curve shifts from MS₁ to MS₂,

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

The price level is a

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

The price level is determined by the supply of, and demand for, money.

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _____.

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, if the Federal Reserve buys bonds, then the money supply curve

The classical dichotomy says that two groups of variables are affected by different forces. What are these two groups of variables?

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

The money demand curve shifts to the left when the Fed buys government bonds.

The supply of money increases when

In the presence of inflation in the U.S., accountants incorrectly measure firms' earnings but the tax code correctly measures real incomes.

The money demand curve is downward sloping because as the value of money falls people desire to hold a larger quantity of money.

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.

Figure 30-2 In the graph, MS represents the money supply and MD represents money demand. The vertical axis is the value of money measured as 1/P and the horizontal axis is the quantity of money. -Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD₂; also suppose the velocity of money is 2. If the money market is in equilibrium, then the economy's real GDP amounts to

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.