Question 1

What does the shoe leather cost of inflation refer to?

Accepted Answer

A)  the fall in real income associated with inflation 
B)  the time spent searching for low prices when inflation rises 
C)  the waste of resources used to maintain lower money holdings 
D)  the increased cost to the government of printing more money 
A)  the fall in real income associated with inflation 
B)  the time spent searching for low prices when inflation rises 
C)  the waste of resources used to maintain lower money holdings 
D)  the increased cost to the government of printing more money

Question 2

Since 1992, at what level has the Bank of Canada successfully maintained the inflation rate?

Accepted Answer

A)  1 percent 
B)  2 percent 
C)  3 percent 
D)  4 percent 
A)  1 percent 
B)  2 percent 
C)  3 percent 
D)  4 percent

Question 3

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

Accepted Answer

A)  Only real interest earnings would be taxed. 
B)  The tax burden on capital gains would increase. 
C)  Average tax rates would increase. 
D)  Investors would be worse off. 
A)  Only real interest earnings would be taxed. 
B)  The tax burden on capital gains would increase. 
C)  Average tax rates would increase. 
D)  Investors would be worse off.

Question 4

The money supply in Freedonia is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. The central bank of Freedonia has instituted a policy of zero inflation. Assuming that velocity is stable, if real GDP grows by 20 percent this year, how will the central bank of Freedonia change the money supply this year?

Accepted Answer

A)  It will not change the money supply at all. 
B)  It will reduce the money supply by 20 percent. 
C)  It will increase the money supply by 20 percent. 
D)  It will increase the money supply by 2.0 percent. 
A)  It will not change the money supply at all. 
B)  It will reduce the money supply by 20 percent. 
C)  It will increase the money supply by 20 percent. 
D)  It will increase the money supply by 2.0 percent.

Question 5

Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How does this change your nominal and real wages?

Accepted Answer

A)  This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. 
B)  This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. 
C)  This increase in pay makes your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. 
D)  This increase in pay makes your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased. 
A)  This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. 
B)  This increase in pay makes your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. 
C)  This increase in pay makes your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. 
D)  This increase in pay makes your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

Question 6

Suppose the Bank of Canada sells government bonds. Use a graph of the money market to show what this does to the value of money.

Accepted Answer

@#IMG-DLM&
When the Bank of Canada sells governmen

Question 7

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  It accounts for 10 percent of government revenue. 
B)  It accounts for less than 1 percent of government revenue. 
C)  Printing money imposes a tax on net borrowers. 
D)  Printing money causes the nominal interest rate to decrease. 
A)  It accounts for 10 percent of government revenue. 
B)  It accounts for less than 1 percent of government revenue. 
C)  Printing money imposes a tax on net borrowers. 
D)  Printing money causes the nominal interest rate to decrease.

Question 9

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Accepted Answer

A) True 
 B)False

Question 10

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

Accepted Answer

Inflation raised the general price level

Question 11

What does the evidence gained from studying hyperinflation indicate?

Accepted Answer

A)  The rate of inflation is not closely related to the rate at which the money supply changes. 
B)  Nominal interest rates are independent of the money supply. 
C)  Inflation rates parallel money supply growth rates. 
D)  Inflation rates move in the opposite direction as the growth rate in money supply. 
A)  The rate of inflation is not closely related to the rate at which the money supply changes. 
B)  Nominal interest rates are independent of the money supply. 
C)  Inflation rates parallel money supply growth rates. 
D)  Inflation rates move in the opposite direction as the growth rate in money supply.

Question 12

When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right?

Accepted Answer

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

Question 13

Which of the following best defines menu costs?

Accepted Answer

A)  resources used by people to maintain lower money holdings when inflation is high 
B)  costs associated with resource misallocation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation 
D)  the cost of more frequent price changes induced by higher inflation 
A)  resources used by people to maintain lower money holdings when inflation is high 
B)  costs associated with resource misallocation. 
C)  the distortion in incentives created by inflation when taxes do not adjust for inflation 
D)  the cost of more frequent price changes induced by higher inflation

Question 14

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?

Accepted Answer

A)  The quantity of money demanded increases. 
B)  The quantity of money demanded decreases. 
C)  The quantity of money supplied increases. 
D)  The quantity of money supplied decreases. 
A)  The quantity of money demanded increases. 
B)  The quantity of money demanded decreases. 
C)  The quantity of money supplied increases. 
D)  The quantity of money supplied decreases.

Question 15

According to the quantity equation, if V and M are constant and Y doubles, what will happen to the price level?

Accepted Answer

A)  It will fall to half its original level. 
B)  It will not change. 
C)  It will double. 
D)  It will more than double. 
A)  It will fall to half its original level. 
B)  It will not change. 
C)  It will double. 
D)  It will more than double.

Question 16

When and where did hyperinflation occur?

Accepted Answer

A)  during 1880-1896 in the United States 
B)  in post-World War I Germany 
C)  during the 1970s in Canada 
D)  during 1930-1933 in the United States 
A)  during 1880-1896 in the United States 
B)  in post-World War I Germany 
C)  during the 1970s in Canada 
D)  during 1930-1933 in the United States

Question 17

Given a nominal interest rate of 7 percent, in which of the following cases would you earn the lowest after-tax real interest rate?

Accepted Answer

A)  Inflation is 1 percent, and the tax rate is 10 percent. 
B)  Inflation is 2 percent, and the tax rate is 15 percent. 
C)  Inflation is 3 percent, and the tax rate is 20 percent. 
D)  Inflation is 4 percent, and the tax rate is 25 percent. 
A)  Inflation is 1 percent, and the tax rate is 10 percent. 
B)  Inflation is 2 percent, and the tax rate is 15 percent. 
C)  Inflation is 3 percent, and the tax rate is 20 percent. 
D)  Inflation is 4 percent, and the tax rate is 25 percent.

Question 18

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Accepted Answer

A) True 
 B)False

Question 19

What type of variable is the price level?

Accepted Answer

A)  quantitative 
B)  controlled 
C)  real 
D)  nominal 
A)  quantitative 
B)  controlled 
C)  real 
D)  nominal

Question 20

According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?

Accepted Answer

A)  nominal GDP 
B)  the price level 
C)  labour productivity 
D)  the nominal wage rate 
A)  nominal GDP 
B)  the price level 
C)  labour productivity 
D)  the nominal wage rate

What does the shoe leather cost of inflation refer to?

Since 1992, at what level has the Bank of Canada successfully maintained the inflation rate?

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How does this change your nominal and real wages?

Suppose the Bank of Canada sells government bonds. Use a graph of the money market to show what this does to the value of money.

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

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

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

What does the evidence gained from studying hyperinflation indicate?

When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right?

Which of the following best defines menu costs?

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?

According to the quantity equation, if V and M are constant and Y doubles, what will happen to the price level?

When and where did hyperinflation occur?

Given a nominal interest rate of 7 percent, in which of the following cases would you earn the lowest after-tax real interest rate?

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

What type of variable is the price level?

According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?

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 does the shoe leather cost of inflation refer to?

Since 1992, at what level has the Bank of Canada successfully maintained the inflation rate?

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

Your boss gives you an increase in the number of dollars you earn per hour, from $11 to $12. How does this change your nominal and real wages?

Suppose the Bank of Canada sells government bonds. Use a graph of the money market to show what this does to the value of money.

In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate but no change in the nominal interest rate.

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

The money supply curve shifts to the left when the Bank of Canada buys government bonds.

Prices are many times higher today than they were 30 years ago, yet people do not work a lot harder nor spend a lot less. How can this be?

What does the evidence gained from studying hyperinflation indicate?

When the money market is depicted in a diagram with the value of money on the vertical axis, what would shift money demand to the right?

Which of the following best defines menu costs?

When the money market is depicted in a graph with the value of money on the vertical axis, as the price level increases, how does the quantity of money demanded or supplied change?

According to the quantity equation, if V and M are constant and Y doubles, what will happen to the price level?

When and where did hyperinflation occur?

Given a nominal interest rate of 7 percent, in which of the following cases would you earn the lowest after-tax real interest rate?

Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

What type of variable is the price level?

According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?

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