Exam 5: The Open Economy

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be:

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:

The quantity theory of money assumes that:

According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the:

In the case of an unanticipated inflation:

When a person purchases a 90-day Treasury bill, he or she cannot know the:

In classical macroeconomic theory, the concept of monetary neutrality means that changes in the money supply do not influence real variables. Explain why changes in money growth affect the nominal interest rate, but not the real interest rate.

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be percent.

The costs of expected inflation cause productive resources of an economy to be directed away from their efficient allocation. Explain how each of the following costs of expected inflation distort the allocation of productive resources: a. shoeleather costs b. menu costs c. the inconvenience of a changing price level

The ex ante real interest rate is equal to the nominal interest rate:

During the American Revolution, the price of gold measured in continental dollars increased to more than times its previous level.

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

"Inflation tax" means that:

The income velocity of money increases and the money demand parameter k when people want to hold money.

Consider the money demand function that takes the form (M/P)d = Y/4i, where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy?

Inflation the variability of relative prices and allocative efficiency.

If the transactions velocity of money remains constant while the quantity of money doubles, the:

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on:

Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. a. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be? b. If Y is 1,000, M is 100, and the growth rate of nominal money is 2 percent, what must i and P be?