Question 1

When does the supply of money increase?

Accepted Answer

A)  when the Bank of Canada increases the overnight rate 
B)  when the Bank of Canada makes open-market sales 
C)  when the Bank of Canada makes open-market purchases 
D)  when the Bank of Canada increases the bank rate 
A)  when the Bank of Canada increases the overnight rate 
B)  when the Bank of Canada makes open-market sales 
C)  when the Bank of Canada makes open-market purchases 
D)  when the Bank of Canada increases the bank rate

Question 2

Velocity in the country of Aquilonia is always stable. In 2014, the money supply was $100 billion, nominal GDP was $500 billion, and the real interest rate was 3 percent. In 2015, the money supply was $105 billion, and real GDP did not change from its level in 2014. What was the approximate nominal interest rate in 2015?

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

Question 3

Which statement best characterizes the inflation tax?

Accepted Answer

A)  The inflation tax transfers wealth from the government to households. 
B)  The inflation tax is the increase in income taxes due to lack of indexation. 
C)  The inflation tax is a tax on everyone who holds money. 
D)  The inflation tax is illegal. 
A)  The inflation tax transfers wealth from the government to households. 
B)  The inflation tax is the increase in income taxes due to lack of indexation. 
C)  The inflation tax is a tax on everyone who holds money. 
D)  The inflation tax is illegal.

Question 4

Alina pays $25 for craft supplies she purchases at the Bargainrama discount store. Which statement accurately identifies the types of variables involved?

Accepted Answer

A)  The $25 is a real variable; the craft supplies is a nominal variable. 
B)  The $25 is a nominal variable; the craft supplies is a real variable. 
C)  Both the $25 and the craft supplies are nominal variables. 
D)  Both the $25 and the craft supplies are real variables. 
A)  The $25 is a real variable; the craft supplies is a nominal variable. 
B)  The $25 is a nominal variable; the craft supplies is a real variable. 
C)  Both the $25 and the craft supplies are nominal variables. 
D)  Both the $25 and the craft supplies are real variables.

Question 5

People use more resources to reduce their money holdings because of high inflation. What is this an example of?

Accepted Answer

A)  inflation-induced tax distortions 
B)  resource misallocation costs 
C)  shoe leather costs 
D)  menu costs 
A)  inflation-induced tax distortions 
B)  resource misallocation costs 
C)  shoe leather costs 
D)  menu costs

Question 6

How can people avoid the inflation tax?

Accepted Answer

A)  by reducing savings 
B)  by not filing a tax return 
C)  by reducing cash holdings 
D)  by spending less 
A)  by reducing savings 
B)  by not filing a tax return 
C)  by reducing cash holdings 
D)  by spending less

Question 7

According to the classical dichotomy, what is NOT influenced by monetary factors?

Accepted Answer

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

Question 8

What is the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone called?

Accepted Answer

A)  a classical variable 
B)  a dichotomous variable 
C)  a nominal variable 
D)  a real variable 
A)  a classical variable 
B)  a dichotomous variable 
C)  a nominal variable 
D)  a real variable

Question 9

If the nominal interest rate is 7 percent and the inflation rate is 4 percent, what is the real interest rate?

Accepted Answer

A)  2 percent 
B)  3 percent 
C)  5 percent 
D)  7 percent 
A)  2 percent 
B)  3 percent 
C)  5 percent 
D)  7 percent

Question 10

What does the classical theory of inflation try to explain?

Accepted Answer

A)  changes in relative prices in the economy determined by factors other than inflation 
B)  the effect of inflation on economic growth and political stability 
C)  the short-run determinants of the price level and the inflation rate 
D)  the long-run determinants of the price level and the inflation rate 
A)  changes in relative prices in the economy determined by factors other than inflation 
B)  the effect of inflation on economic growth and political stability 
C)  the short-run determinants of the price level and the inflation rate 
D)  the long-run determinants of the price level and the inflation rate

Question 11

Which statement best describes how the cost of unexpected inflation is distributed?

Accepted Answer

A)  Unexpected inflation has a greater cost for those who borrow than those who save. 
B)  Unexpected inflation has a greater cost for those who hold a little money than for those who hold a lot of money. 
C)  Unexpected inflation has a greater cost for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage. 
D)  Unexpected inflation has a greater cost for savers in high income tax brackets than for savers in low income tax brackets. 
A)  Unexpected inflation has a greater cost for those who borrow than those who save. 
B)  Unexpected inflation has a greater cost for those who hold a little money than for those who hold a lot of money. 
C)  Unexpected inflation has a greater cost for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage. 
D)  Unexpected inflation has a greater cost for savers in high income tax brackets than for savers in low income tax brackets.

Question 12

Which statement best describes the evolution of the price level in Canada?

Accepted Answer

A)  The price level rose at an average annual rate of about 2 percent over the past 70 years. 
B)  The price level has increased about 12-fold over the past 70 years. 
C)  The price level increased in the 1970s at a rate above the average of the past 70 years. 
D)  The price level has never decreased over the past 70 years. 
A)  The price level rose at an average annual rate of about 2 percent over the past 70 years. 
B)  The price level has increased about 12-fold over the past 70 years. 
C)  The price level increased in the 1970s at a rate above the average of the past 70 years. 
D)  The price level has never decreased over the past 70 years.

Question 13

Velocity in the country of Shem is always stable. In 2014, the money supply was $200 billion and the GDP price deflator was four times as high as it was in the base year. In 2015, the money supply increased to $240 billion, the price level increased by 15 percent, and nominal GDP equalled $1200 billion. By how much did real GDP increase between 2014 and 2015?

Accepted Answer

A)  0.45 percent 
B)  4.35 percent 
C)  7.45 percent 
D)  20 percent 
A)  0.45 percent 
B)  4.35 percent 
C)  7.45 percent 
D)  20 percent

Question 14

What is an effect of expected inflation?

Accepted Answer

A)  It increases wages. 
B)  It increases the incentive to save. 
C)  It benefits lenders and borrowers. 
D)  It changes real interest rates. 
A)  It increases wages. 
B)  It increases the incentive to save. 
C)  It benefits lenders and borrowers. 
D)  It changes real interest rates.

Question 15

Suppose we interpret the quantity theory as a money demand equation. The quantity theory of money equation can be transformed into a growth rate equation: ÄM/M + ÄV/V = ÄP/P + ÄY/Y. If the velocity of money and real GDP are constant, calculate the elasticity of the demand for money with respect to the price level.

Accepted Answer

The elasticity of money with respect to

Question 16

According to the classical dichotomy, what is influenced by monetary factors?

Accepted Answer

A)  production 
B)  the interest rate adjusted for inflation 
C)  the current-dollar wage 
D)  the constant-dollar GDP 
A)  production 
B)  the interest rate adjusted for inflation 
C)  the current-dollar wage 
D)  the constant-dollar GDP

Question 17

When the money market is depicted in a graph with the value of money on the vertical axis, what does an increase in the price level cause?

Accepted Answer

A)  a shift to the right of the money demand curve 
B)  a shift to the left of the money demand curve 
C)  a movement to the left along the money demand curve 
D)  a movement to the right along the money demand curve 
A)  a shift to the right of the money demand curve 
B)  a shift to the left of the money demand curve 
C)  a movement to the left along the money demand curve 
D)  a movement to the right along the money demand curve

Question 18

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

Accepted Answer

A)  Debtors and creditors would both have reduced real wealth. 
B)  Debtors and creditors would both have increased real wealth. 
C)  Debtors would gain at the expense of creditors. 
D)  Creditors would gain at the expense of debtors. 
A)  Debtors and creditors would both have reduced real wealth. 
B)  Debtors and creditors would both have increased real wealth. 
C)  Debtors would gain at the expense of creditors. 
D)  Creditors would gain at the expense of debtors.

Question 19

List and define any two of the costs of high inflation.

Accepted Answer

The costs include:
hoe leather costs: Th

Question 20

Figure 11-1
  
-Refer to the Figure 11-1. What happens when the money supply curve shifts from MS1 to MS2?

Accepted Answer

A)  The equilibrium value of money decreases. 
B)  The equilibrium price level decreases. 
C)  The supply of money decreases. 
D)  The demand for goods and services decreases. 
A)  The equilibrium value of money decreases. 
B)  The equilibrium price level decreases. 
C)  The supply of money decreases. 
D)  The demand for goods and services decreases.

When does the supply of money increase?

Which statement best characterizes the inflation tax?

Alina pays $25 for craft supplies she purchases at the Bargainrama discount store. Which statement accurately identifies the types of variables involved?

People use more resources to reduce their money holdings because of high inflation. What is this an example of?

How can people avoid the inflation tax?

According to the classical dichotomy, what is NOT influenced by monetary factors?

What is the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone called?

If the nominal interest rate is 7 percent and the inflation rate is 4 percent, what is the real interest rate?

What does the classical theory of inflation try to explain?

Which statement best describes how the cost of unexpected inflation is distributed?

Which statement best describes the evolution of the price level in Canada?

What is an effect of expected inflation?

According to the classical dichotomy, what is influenced by monetary factors?

When the money market is depicted in a graph with the value of money on the vertical axis, what does an increase in the price level cause?

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

List and define any two of the costs of high inflation.

Figure 11-1 -Refer to the Figure 11-1. What happens when the money supply curve shifts from MS1 to MS2?

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

Exam 11: Money Growth and Inflation

When does the supply of money increase?

Which statement best characterizes the inflation tax?

Alina pays $25 for craft supplies she purchases at the Bargainrama discount store. Which statement accurately identifies the types of variables involved?

People use more resources to reduce their money holdings because of high inflation. What is this an example of?

How can people avoid the inflation tax?

According to the classical dichotomy, what is NOT influenced by monetary factors?

What is the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone called?

If the nominal interest rate is 7 percent and the inflation rate is 4 percent, what is the real interest rate?

What does the classical theory of inflation try to explain?

Which statement best describes how the cost of unexpected inflation is distributed?

Which statement best describes the evolution of the price level in Canada?

What is an effect of expected inflation?

According to the classical dichotomy, what is influenced by monetary factors?

When the money market is depicted in a graph with the value of money on the vertical axis, what does an increase in the price level cause?

How are debtors and creditors affected when the economy unexpectedly goes from inflation to deflation?

List and define any two of the costs of high inflation.

Figure 11-1 -Refer to the Figure 11-1. What happens when the money supply curve shifts from MS1 to MS2?

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