Question 1

If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?

Accepted Answer

A)  3 percent 
B)  5 percent 
C)  8 percent 
D)  11 percent 
A)  3 percent 
B)  5 percent 
C)  8 percent 
D)  11 percent B

Question 2

Norbert purchased 100 shares of Gentech stock for $200 per share in year 1 and sold all the shares in year 2 for $220 a share. Between year 1 and year 2, the price index increased by 5 percent. The tax on capital gains is 50 percent. If the capital gains tax is on nominal gains, how much tax does Norbert pay on his gain?

Accepted Answer

A)  $900 
B)  $950 
C)  $1000 
D)  $1050 
A)  $900 
B)  $950 
C)  $1000 
D)  $1050 C

Question 3

If the Bank of Canada were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

Accepted Answer

A) True 
 B)False  False

Question 4

According to the classical dichotomy, what increases when the money supply increases?

Accepted Answer

A)  the real interest rate 
B)  the real GDP 
C)  the value of money 
D)  the price level 
A)  the real interest rate 
B)  the real GDP 
C)  the value of money 
D)  the price level

Question 5

Under which condition is wealth distributed from creditors to debtors?

Accepted Answer

A)  when inflation is high, whether it is expected or not 
B)  when inflation is low, whether it is expected or not 
C)  when inflation is unexpectedly high 
D)  when inflation is unexpectedly low 
A)  when inflation is high, whether it is expected or not 
B)  when inflation is low, whether it is expected or not 
C)  when inflation is unexpectedly high 
D)  when inflation is unexpectedly low

Question 6

For a given real interest rate, which statement best describes the effects of an increase in inflation?

Accepted Answer

A)  Inflation makes the real interest rate decrease, which encourages savings. 
B)  Inflation makes the real interest rate decrease, which discourages savings. 
C)  Inflation makes the real interest rate increase, which encourages savings. 
D)  Inflation makes the real interest rate increase, which discourages savings. 
A)  Inflation makes the real interest rate decrease, which encourages savings. 
B)  Inflation makes the real interest rate decrease, which discourages savings. 
C)  Inflation makes the real interest rate increase, which encourages savings. 
D)  Inflation makes the real interest rate increase, which discourages savings.

Question 7

The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion, and real GDP is $400 billion. What is the price level in Freedonia?

Accepted Answer

A)  1 
B)  2 
C)  4 
D)  8 
A)  1 
B)  2 
C)  4 
D)  8

Question 8

Under which condition is wealth distributed from debtors to creditors?

Accepted Answer

A)  when inflation is high, but expected 
B)  when inflation is low, but expected 
C)  when inflation is unexpectedly high 
D)  when inflation is unexpectedly low 
A)  when inflation is high, but expected 
B)  when inflation is low, but expected 
C)  when inflation is unexpectedly high 
D)  when inflation is unexpectedly low

Question 9

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

Accepted Answer

A)  The equilibrium value and equilibrium quantity of money both increase. 
B)  The equilibrium value and equilibrium quantity of money both decrease. 
C)  The equilibrium value increases, while the equilibrium quantity of money decreases. 
D)  The equilibrium value decreases, while the equilibrium quantity of money increases. 
A)  The equilibrium value and equilibrium quantity of money both increase. 
B)  The equilibrium value and equilibrium quantity of money both decrease. 
C)  The equilibrium value increases, while the equilibrium quantity of money decreases. 
D)  The equilibrium value decreases, while the equilibrium quantity of money increases.

Question 10

Identify each of the following as nominal or real variables.
a. the physical output of goods and services
b. the overall price level
c. the dollar price of coffee
d. the price of coffee relative to the price of tea
e. the unemployment rate
f. the tips that you earn from your part-time serving job
g. the amount of goods you can purchase with the wage you get each hour
h. the income taxes that you pay the government

Accepted Answer

a. real variable
b. nominal va

Question 11

What can a country increase in the long run by increasing its money growth rate?

Accepted Answer

A)  the nominal wage divided by the price level 
B)  real output 
C)  real interest rates 
D)  the price level 
A)  the nominal wage divided by the price level 
B)  real output 
C)  real interest rates 
D)  the price level

Question 12

What are the costs of inflation?

Accepted Answer

The costs of inflation include "shoe lea

Question 13

How is the supply of money determined?

Accepted Answer

A)  by the price level 
B)  by the Ministry of Finance 
C)  by the Bank of Canada 
D)  by the demand for money 
A)  by the price level 
B)  by the Ministry of Finance 
C)  by the Bank of Canada 
D)  by the demand for money

Question 14

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

Question 15

What is inflation positively correlated with?

Accepted Answer

A)  nominal wage growth 
B)  real interest rate 
C)  productivity growth rate 
D)  the price level 
A)  nominal wage growth 
B)  real interest rate 
C)  productivity growth rate 
D)  the price level

Question 16

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest

Question 17

The source of all four classic hyperinflations was high rates of money growth.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

Accepted Answer

A)  1.8 percent 
B)  2.4 percent 
C)  3.2 percent 
D)  4.4 percent 
A)  1.8 percent 
B)  2.4 percent 
C)  3.2 percent 
D)  4.4 percent

Question 20

As the price level decreases, what happens to the value of money?

Accepted Answer

A)  It increases, so people want to hold more of it. 
B)  It increases, so people want to hold less of it. 
C)  It decreases, so people want to hold more of it. 
D)  It decreases, so people want to hold less of it. 
A)  It increases, so people want to hold more of it. 
B)  It increases, so people want to hold less of it. 
C)  It decreases, so people want to hold more of it. 
D)  It decreases, so people want to hold less of it.

If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?

If the Bank of Canada were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

According to the classical dichotomy, what increases when the money supply increases?

Under which condition is wealth distributed from creditors to debtors?

For a given real interest rate, which statement best describes the effects of an increase in inflation?

The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion, and real GDP is $400 billion. What is the price level in Freedonia?

Under which condition is wealth distributed from debtors to creditors?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

What can a country increase in the long run by increasing its money growth rate?

What are the costs of inflation?

How is the supply of money determined?

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

What is inflation positively correlated with?

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

The source of all four classic hyperinflations was high rates of money growth.

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

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

As the price level decreases, what happens to the value of money?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 11: Money Growth and Inflation

If the nominal interest rate is 9 percent and the real interest rate is 4 percent, what is the inflation rate?

If the Bank of Canada were to unexpectedly increase the money supply, creditors would gain at the expense of debtors.

According to the classical dichotomy, what increases when the money supply increases?

Under which condition is wealth distributed from creditors to debtors?

For a given real interest rate, which statement best describes the effects of an increase in inflation?

The money supply in Freedonia is $200 billion. Nominal GDP is $800 billion, and real GDP is $400 billion. What is the price level in Freedonia?

Under which condition is wealth distributed from debtors to creditors?

When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?

What can a country increase in the long run by increasing its money growth rate?

What are the costs of inflation?

How is the supply of money determined?

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

What is inflation positively correlated with?

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

The source of all four classic hyperinflations was high rates of money growth.

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

You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate?

As the price level decreases, what happens to the value of money?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters