Exam 11: Money Growth and Inflation

According to the quantity theory of money, when the money supply doubles, which variable doubles?

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?

This problem compares the effect of a tax on interest earnings over a number of years, when interest is compounded annually. Suppose you purchase $1000 worth of mutual funds paying an average of 5 percent per year.?a) How much is your interest after 30 years if there was no tax on interest??b) How much is your interest after 30 years if there is a 20 percent tax on interest earnings?

Inflation induces people to spend more resources maintaining lower money holdings. This is called shoe leather costs.

Refer to the following:?a. The central bank of the Republic of Moldova needs to determine by how much to increase the money supply next year, if they estimate an increase in the overall economic activity (real GDP) of 2.5 percent and have a target inflation rate of 4 percent. The velocity of money has been observed to be constant over the past many years. If you were a consultant to the government, what would your advice be??b. Next year, the National Bank of Moldova wishes to reduce inflation to 2 percent, and estimates an increase in real GDP by 1.5 percent. What should be the change in the money supply?

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

Using separate graphs, demonstrate what happens to the money supply, money demand, the value of money, and the price level if: a. the Bank of Canada increases the money supply. b. people decide to demand less money at each value of money.

In the 1990s, Canadian prices rose at about the same rate as in the 1970s.

When the number of dollars needed to buy a representative basket of goods falls, what happens to the value of money?

Which inflation cost matters even if actual inflation and expected inflation are the same?

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.

The velocity of money in the small Republic of Sloagia is always the same. Last year, the money supply was $2 billion and real GDP was $5 billion. This year, the money supply increased by 6 percent, real GDP by 4 percent, and nominal GDP is $6.5 billion.?a) Calculate the velocity of money and the price levels in the two years, and then calculate the inflation rate.?b) Calculate the inflation rate using the formula ÄM/M + ÄV/V = ÄP/P + ÄY/Y, where the Greek letter Ä represents a change and the ratio ÄM/M × 100 is the percentage change (or the rate of change) in M. Compare this result with the result you obtained in part a. Why could there be some difference?

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

Arnold puts money into an account. One year later, he sees that he has 7 percent more dollars and that his money will buy 3 percent more goods. Which of the following is consistent with these facts?

You put money in an account and earn a real interest rate of 10 percent. Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real interest rate?

If the money supply growth rate permanently increased from 5 percent to 30 percent, what would we expect to happen to inflation?

If your salary increased by 8 percent and prices increased by 4 percent, how much did your real wage rise by?

Suppose that velocity and output are constant, the quantity theory and Fisher effect are correct, the nominal interest rate is 7 percent, and money growth is 3 percent. Which statement is consistent with these facts?

What is the immediate and longer-term effect of a decrease in the money supply?

Over the past 70 years, what was the approximate average annual inflation rate?