Question 1

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha

Question 2

Assume you buy stock and its price rises just as much as the price level. Before taxes, what have you made?

Accepted Answer

A)  a nominal and real gain, but you pay taxes only on the nominal gain 
B)  a nominal and real gain, but you pay taxes only on the real gain 
C)  a nominal gain, but no real gain, yet you pay taxes on the nominal gain 
D)  a nominal gain, but no real gain, so you pay no taxes on the nominal gain 
A)  a nominal and real gain, but you pay taxes only on the nominal gain 
B)  a nominal and real gain, but you pay taxes only on the real gain 
C)  a nominal gain, but no real gain, yet you pay taxes on the nominal gain 
D)  a nominal gain, but no real gain, so you pay no taxes on the nominal gain

Question 3

When the money market is represented in a diagram with the value of money on the vertical axis, how does the money supply curve shift from an increase in the money supply?

Accepted Answer

A)  It shifts to the right, lowering the price level. 
B)  It shifts to the right, raising the price level. 
C)  It shifts to the left, raising the price level. 
D)  It shifts to the left, lowering the price level. 
A)  It shifts to the right, lowering the price level. 
B)  It shifts to the right, raising the price level. 
C)  It shifts to the left, raising the price level. 
D)  It shifts to the left, lowering the price level.

Question 4

Figure 11-1
  
-Refer to the Figure 11-1. If the current money supply is located at MS1 and the value of money is 2, what is the excess demand or supply?

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  3 
A)  0 
B)  1 
C)  2 
D)  3

Question 5

Given a nominal interest rate of 10 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 4 percent, and the tax rate is 40 percent. 
C)  Inflation is 5 percent, and the tax rate is 30 percent. 
D)  Inflation is 6 percent, and the tax rate is 20 percent. 
A)  Inflation is 2 percent, and the tax rate is 50 percent. 
B)  Inflation is 4 percent, and the tax rate is 40 percent. 
C)  Inflation is 5 percent, and the tax rate is 30 percent. 
D)  Inflation is 6 percent, and the tax rate is 20 percent.

Question 6

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?

Accepted Answer

A)  by selling bonds on the open market, which would have raised the value of money 
B)  by purchasing bonds on the open market, which would have raised the value of money 
C)  by selling bonds on the open market, which would have lowered the value of money 
D)  by purchasing bonds on the open market, which would have lowered the value of money 
A)  by selling bonds on the open market, which would have raised the value of money 
B)  by purchasing bonds on the open market, which would have raised the value of money 
C)  by selling bonds on the open market, which would have lowered the value of money 
D)  by purchasing bonds on the open market, which would have lowered the value of money

Question 7

When a graph of the money market is drawn with the value of money on the vertical axis, what will happen if the value of money is below the equilibrium level?

Accepted Answer

A)  The price level will rise. 
B)  The value of money will rise. 
C)  Money demand will shift left. 
D)  Money demand will shift right. 
A)  The price level will rise. 
B)  The value of money will rise. 
C)  Money demand will shift left. 
D)  Money demand will shift right.

Question 8

Inflation distorts relative prices. What does this mean, and why does it impose a cost on society?

Accepted Answer

Relative prices are the value of one goo

Question 9

You put money in an account that earns 8 percent. The inflation rate is 4 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  1.0 percent 
B)  3.2 percent 
C)  3.3 percent 
D)  3.4 percent 
A)  1.0 percent 
B)  3.2 percent 
C)  3.3 percent 
D)  3.4 percent

Question 10

In recent years, Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Accepted Answer

The Fisher effect says that increases in

Question 11

Assume you buy some stock and its price rises less than the price level. What is the result of your purchase?

Accepted Answer

A)  a nominal and real gain 
B)  a nominal and real loss 
C)  a nominal loss and a real gain 
D)  a nominal gain and a real loss 
A)  a nominal and real gain 
B)  a nominal and real loss 
C)  a nominal loss and a real gain 
D)  a nominal gain and a real loss

Question 12

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. 
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 13

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

Accepted Answer

A)  the Keynes effect 
B)  the Hume effect 
C)  the Fisher effect 
D)  the Ricardian equivalence effect 
A)  the Keynes effect 
B)  the Hume effect 
C)  the Fisher effect 
D)  the Ricardian equivalence effect

Question 14

When the money market is depicted in a diagram with the value of money on the vertical axis, what happens if the price level is above the equilibrium level?

Accepted Answer

A)  There is a shortage, so the price level will rise. 
B)  There is a shortage, so the price level will fall. 
C)  There is a surplus, so the price level will rise. 
D)  There is a surplus, so the price level will fall. 
A)  There is a shortage, so the price level will rise. 
B)  There is a shortage, so the price level will fall. 
C)  There is a surplus, so the price level will rise. 
D)  There is a surplus, so the price level will fall.

Question 15

Use a money supply and demand diagram to answer the following problem: Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

Accepted Answer

An increase in interest rates makes the

Question 16

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. 
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 17

Which statement best describes the impact of open-market purchases by the Bank of Canada?

Accepted Answer

A)  The money supply and the value of money increase. 
B)  The money supply increases, which makes the value of money decrease. 
C)  The money supply and the value of money decrease. 
D)  The money supply decreases, which makes the value of money increase. 
A)  The money supply and the value of money increase. 
B)  The money supply increases, which makes the value of money decrease. 
C)  The money supply and the value of money decrease. 
D)  The money supply decreases, which makes the value of money increase.

Question 18

Which statement best defines the velocity of money?

Accepted Answer

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

Question 19

In this problem we try to establish a link between the quantity equation, MdV = PY, and the money demand-money supply diagram (Md is the quantity of money demanded). In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded, draw the Md - P curve that is implied by the quantity equation.

Accepted Answer

The quantity equation can be written und

Question 20

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

Accepted Answer

A)  nominal 
B)  real 
C)  stock 
D)  flow 
A)  nominal 
B)  real 
C)  stock 
D)  flow

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Assume you buy stock and its price rises just as much as the price level. Before taxes, what have you made?

When the money market is represented in a diagram with the value of money on the vertical axis, how does the money supply curve shift from an increase in the money supply?

Figure 11-1 -Refer to the Figure 11-1. If the current money supply is located at MS1 and the value of money is 2, what is the excess demand or supply?

Given a nominal interest rate of 10 percent, when would you earn the highest after-tax real interest rate?

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?

When a graph of the money market is drawn with the value of money on the vertical axis, what will happen if the value of money is below the equilibrium level?

Inflation distorts relative prices. What does this mean, and why does it impose a cost on society?

You put money in an account that earns 8 percent. The inflation rate is 4 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

In recent years, Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Assume you buy some stock and its price rises less than the price level. What is the result of your purchase?

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

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

When the money market is depicted in a diagram with the value of money on the vertical axis, what happens if the price level is above the equilibrium level?

Use a money supply and demand diagram to answer the following problem: Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

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

Which statement best describes the impact of open-market purchases by the Bank of Canada?

Which statement best defines the velocity of money?

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

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

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

Assume you buy stock and its price rises just as much as the price level. Before taxes, what have you made?

When the money market is represented in a diagram with the value of money on the vertical axis, how does the money supply curve shift from an increase in the money supply?

Figure 11-1 -Refer to the Figure 11-1. If the current money supply is located at MS1 and the value of money is 2, what is the excess demand or supply?

Given a nominal interest rate of 10 percent, when would you earn the highest after-tax real interest rate?

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?

When a graph of the money market is drawn with the value of money on the vertical axis, what will happen if the value of money is below the equilibrium level?

Inflation distorts relative prices. What does this mean, and why does it impose a cost on society?

You put money in an account that earns 8 percent. The inflation rate is 4 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

In recent years, Bolivia, Russia, and Turkey have had much higher nominal interest rates than Canada, while Japan has had lower nominal interest rates. What would you predict is true about money growth in these other countries? Why?

Assume you buy some stock and its price rises less than the price level. What is the result of your purchase?

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

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

When the money market is depicted in a diagram with the value of money on the vertical axis, what happens if the price level is above the equilibrium level?

Use a money supply and demand diagram to answer the following problem: Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

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

Which statement best describes the impact of open-market purchases by the Bank of Canada?

Which statement best defines the velocity of money?

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

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