Question 1

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

Accepted Answer

A)  The real interest rate would decrease by 1 percentage point. 
B)  The real interest rate would increase by 1 percentage point. 
C)  The real interest rate would decrease by 3 percentage points. 
D)  The real interest rate would increase by 3 percentage points. 
A)  The real interest rate would decrease by 1 percentage point. 
B)  The real interest rate would increase by 1 percentage point. 
C)  The real interest rate would decrease by 3 percentage points. 
D)  The real interest rate would increase by 3 percentage points.

Question 2

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?

Accepted Answer

A)  if either money demand or money supply shifts right 
B)  if either money demand or money supply shifts left 
C)  if money demand shifts right or money supply shifts left 
D)  if money demand shifts left or money supply shifts right 
A)  if either money demand or money supply shifts right 
B)  if either money demand or money supply shifts left 
C)  if money demand shifts right or money supply shifts left 
D)  if money demand shifts left or money supply shifts right

Question 3

In the long run, when money is neutral, which of the following increases when the money supply growth rate increases?

Accepted Answer

A)  real output growth 
B)  real interest rates 
C)  nominal interest rates 
D)  the money supply divided by the price level 
A)  real output growth 
B)  real interest rates 
C)  nominal interest rates 
D)  the money supply divided by the price level

Question 4

Velocity in the country of Nemedia is always stable. In 2014, the money supply was $100 billion and real GDP was $300 billion. In 2015, the money supply increased by 10 percent, real GDP increased by 5 percent, and nominal GDP equalled $660 billion. By how much did the price level increase between 2014 and 2015?

Accepted Answer

A)  2.38 percent 
B)  4.76 percent 
C)  9.50 percent 
D)  10.0 percent 
A)  2.38 percent 
B)  4.76 percent 
C)  9.50 percent 
D)  10.0 percent

Question 5

According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?

Accepted Answer

A)  200, 3 
B)  400, 4 
C)  600, 5 
D)  800, 6 
A)  200, 3 
B)  400, 4 
C)  600, 5 
D)  800, 6

Question 6

What does the principle of monetary neutrality imply?

Accepted Answer

A)  An increase in the money supply will increase real GDP and the price level. 
B)  An increase in the money supply will increase real GDP, but not the price level. 
C)  An increase in the money supply will increase the price level, but not real GDP. 
D)  An increase in the money supply will increase neither the price level nor real GDP. 
A)  An increase in the money supply will increase real GDP and the price level. 
B)  An increase in the money supply will increase real GDP, but not the price level. 
C)  An increase in the money supply will increase the price level, but not real GDP. 
D)  An increase in the money supply will increase neither the price level nor real GDP.

Question 7

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?

Accepted Answer

A)  Her real and nominal wages have risen. 
B)  Her real and nominal wages have fallen. 
C)  Her real wage has risen, but her nominal wage has fallen. 
D)  Her real wage has fallen, but her nominal wage has risen. 
A)  Her real and nominal wages have risen. 
B)  Her real and nominal wages have fallen. 
C)  Her real wage has risen, but her nominal wage has fallen. 
D)  Her real wage has fallen, but her nominal wage has risen.

Question 8

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi

Question 9

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

Accepted Answer

A) True 
 B)False

Question 10

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

Accepted Answer

A)  Evidence shows that money growth and inflation moved together, which supports the quantity theory. 
B)  Evidence shows that money growth and inflation moved together, which does not support the quantity theory. 
C)  Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory. 
D)  Evidence shows that money growth and inflation did not move closely with each other, which does not support the quantity theory. 
A)  Evidence shows that money growth and inflation moved together, which supports the quantity theory. 
B)  Evidence shows that money growth and inflation moved together, which does not support the quantity theory. 
C)  Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory. 
D)  Evidence shows that money growth and inflation did not move closely with each other, which does not support the quantity theory.

Question 11

The country of Aquilonia has a tax system identical to that of Canada. Suppose an Aquilonian bought a parcel of land for $10,000 in 1960 when the price index equalled 100. In 2016, the person sold the land for $100,000, and the price index equalled 500. If the person must pay 20 percent of any capital gain in taxes, what is the after-tax real capital gain (in 2016 dollars) on the land?

Accepted Answer

A)  $6400 
B)  $32,000 
C)  $62,000 
D)  $72,000 
A)  $6400 
B)  $32,000 
C)  $62,000 
D)  $72,000

Question 12

According to the classical dichotomy, when the money supply doubles, what also doubles?

Accepted Answer

A)  the real prices 
B)  the nominal interest rate 
C)  the real GDP 
D)  the nominal GDP 
A)  the real prices 
B)  the nominal interest rate 
C)  the real GDP 
D)  the nominal GDP

Question 13

According to the quantity equation, if P = 15, Y = 100, and M = 250, what is V?

Accepted Answer

A)  1.75 
B)  3 
C)  6 
D)  30 
A)  1.75 
B)  3 
C)  6 
D)  30

Question 14

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta

Question 15

What terms refers to the cost of changing price tags and price listings?

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 16

Greta puts money in a savings account at her bank, earning 3.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 1.5 percent. How has the amount of goods Greta can buy changed one year later?

Accepted Answer

A)  Greta can buy 3.5 percent more goods. 
B)  Greta can buy 3.5 percent less goods. 
C)  Greta can buy 2 percent more goods. 
D)  Greta can buy 2 percent less goods. 
A)  Greta can buy 3.5 percent more goods. 
B)  Greta can buy 3.5 percent less goods. 
C)  Greta can buy 2 percent more goods. 
D)  Greta can buy 2 percent less goods.

Question 17

Trent bought a parcel of land for $20,000 in 1960 when the price index was 100; he sold it in 2016, when the price index was 600, for $100,000. If Trent must pay 20 percent of any capital gain in taxes, what is his after-tax real capital gain (in 2016 dollars)?

Accepted Answer

A)  -$64,000 
B)  -$36,000 
C)  -$16,667 
D)  -$3333 
A)  -$64,000 
B)  -$36,000 
C)  -$16,667 
D)  -$3333

Question 18

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

Accepted Answer

A) True 
 B)False

Question 19

What does the quantity theory of money try to explain?

Accepted Answer

A)  how inflation determines economic growth 
B)  the relationship between the quantity of money and the price level 
C)  the determinants of relative prices in the economy 
D)  the relationship between inflation and unemployment 
A)  how inflation determines economic growth 
B)  the relationship between the quantity of money and the price level 
C)  the determinants of relative prices in the economy 
D)  the relationship between inflation and unemployment

Question 20

Assuming that V is constant, what could result from an increase in M in the quantity equation?

Accepted Answer

A)  a decrease in the price level 
B)  an increase in real GDP 
C)  a decrease in nominal GDP 
D)  an increase in the price level 
A)  a decrease in the price level 
B)  an increase in real GDP 
C)  a decrease in nominal GDP 
D)  an increase in the price level

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?

In the long run, when money is neutral, which of the following increases when the money supply growth rate increases?

According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?

What does the principle of monetary neutrality imply?

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?

According to the classical dichotomy, what changes nominal variables? What changes real variables?

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

According to the classical dichotomy, when the money supply doubles, what also doubles?

According to the quantity equation, if P = 15, Y = 100, and M = 250, what is V?

Explain how inflation affects savings.

What terms refers to the cost of changing price tags and price listings?

Greta puts money in a savings account at her bank, earning 3.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 1.5 percent. How has the amount of goods Greta can buy changed one year later?

Trent bought a parcel of land for $20,000 in 1960 when the price index was 100; he sold it in 2016, when the price index was 600, for $100,000. If Trent must pay 20 percent of any capital gain in taxes, what is his after-tax real capital gain (in 2016 dollars)?

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

What does the quantity theory of money try to explain?

Assuming that V is constant, what could result from an increase in M in the quantity equation?

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 a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

When the money market is depicted in a diagram with the value of money on the vertical axis, in which situation does the value of money increase?

In the long run, when money is neutral, which of the following increases when the money supply growth rate increases?

According to the quantity equation, if P = 6 and Y = 800, which of the following pairs could M and V be?

What does the principle of monetary neutrality imply?

An assistant professor of economics gets a $100-a-month raise, but then she figures that with her current monthly salary she can't buy as many goods as she could last year. What has happened to her real and nominal wage?

According to the classical dichotomy, what changes nominal variables? What changes real variables?

When the value of money is on the vertical axis, the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

What does the evidence from hyperinflations indicate with respect to the quantity theory of money?

According to the classical dichotomy, when the money supply doubles, what also doubles?

According to the quantity equation, if P = 15, Y = 100, and M = 250, what is V?

Explain how inflation affects savings.

What terms refers to the cost of changing price tags and price listings?

Greta puts money in a savings account at her bank, earning 3.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 1.5 percent. How has the amount of goods Greta can buy changed one year later?

Trent bought a parcel of land for $20,000 in 1960 when the price index was 100; he sold it in 2016, when the price index was 600, for $100,000. If Trent must pay 20 percent of any capital gain in taxes, what is his after-tax real capital gain (in 2016 dollars)?

Inflation distorts savings because people pay taxes on their nominal rather than their real interest income.

What does the quantity theory of money try to explain?

Assuming that V is constant, what could result from an increase in M in the quantity equation?

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