Question 1

According to the classical dichotomy, which of the following increases when the money supply increases?

Accepted Answer

A) the real interest rate 
B) real GDP 
C) the real wage 
D) None of the above increases. 
A) the real interest rate 
B) real GDP 
C) the real wage 
D) None of the above increases. D

Question 2

Nominal GDP measures

Accepted Answer

A) the total quantity of final goods and services produced. 
B) the dollar value of the economy's output of final goods and services. 
C) the total income received from producing final goods and services measured in constant dollars. 
D) None of the above is correct. 
A) the total quantity of final goods and services produced. 
B) the dollar value of the economy's output of final goods and services. 
C) the total income received from producing final goods and services measured in constant dollars. 
D) None of the above is correct. B

Question 3

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Accepted Answer

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

Question 4

People can reduce the inflation tax by

Accepted Answer

A) reducing savings. 
B) increasing deductions on their income tax. 
C) reducing cash holdings. 
D) None of the above is correct. 
A) reducing savings. 
B) increasing deductions on their income tax. 
C) reducing cash holdings. 
D) None of the above is correct.

Question 5

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

Accepted Answer

A) the inflation rate and real interest rates. 
B) the inflation rate, but not real interest rates. 
C) real interest rates, but not the inflation rate. 
D) neither the inflation rate nor real interest rates. 
A) the inflation rate and real interest rates. 
B) the inflation rate, but not real interest rates. 
C) real interest rates, but not the inflation rate. 
D) neither the inflation rate nor real interest rates.

Question 6

If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

Accepted Answer

A) the expected real interest rate is 11 percent. 
B) the expected real interest rate is 7 percent. 
C) the expected real interest rate is 4 percent. 
D) the expected real interest rate is 15 percent. 
A) the expected real interest rate is 11 percent. 
B) the expected real interest rate is 7 percent. 
C) the expected real interest rate is 4 percent. 
D) the expected real interest rate is 15 percent.

Question 7

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

Accepted Answer

A) the price level and the value of money rise. 
B) the price level rises and the value of money falls. 
C) the price level falls and the value of money rises. 
D) the price level and the value of money fall. 
A) the price level and the value of money rise. 
B) the price level rises and the value of money falls. 
C) the price level falls and the value of money rises. 
D) the price level and the value of money fall.

Question 8

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Accepted Answer

A) The dollar amount you pay is a nominal value. The number of goods you give up is a real value. 
B) The dollar amount you pay is a real value. The number of goods you give up is a nominal value. 
C) Both the dollar amount you pay and the goods you give up are nominal values. 
D) Both the dollar amount you pay and the goods you give up are real values. 
A) The dollar amount you pay is a nominal value. The number of goods you give up is a real value. 
B) The dollar amount you pay is a real value. The number of goods you give up is a nominal value. 
C) Both the dollar amount you pay and the goods you give up are nominal values. 
D) Both the dollar amount you pay and the goods you give up are real values.

Question 9

Suppose there is a surplus in the money market.

Accepted Answer

A) This could have been created by an increase in the money supply. The value of money will rise. 
B) This could have been created by an increase in the money supply. The value of money will fall. 
C) This could have been created by a decrease in the money supply. The value of money will rise. 
D) This could have been created by a decrease in the money supply. The value of money will fall. 
A) This could have been created by an increase in the money supply. The value of money will rise. 
B) This could have been created by an increase in the money supply. The value of money will fall. 
C) This could have been created by a decrease in the money supply. The value of money will rise. 
D) This could have been created by a decrease in the money supply. The value of money will fall.

Question 10

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A) spend more time looking for bargains. 
B) spend less time looking for bargains. 
C) hold more money. 
D) hold less money. 
A) spend more time looking for bargains. 
B) spend less time looking for bargains. 
C) hold more money. 
D) hold less money.

Question 11

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS2, then

Accepted Answer

A) when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. 
B) when the money market is in equilibrium, one unit of goods and services sells for 33 cents. 
C) there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D) All of the above are correct. 
A) when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. 
B) when the money market is in equilibrium, one unit of goods and services sells for 33 cents. 
C) there is an excess demand for money if the value of money in terms of goods and services is 0.5. 
D) All of the above are correct.

Question 12

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 13

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

Accepted Answer

A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected. 
A) higher than she had expected, and the real value of the loan is higher than she had expected. 
B) higher than she had expected, and the real value of the loan is lower than she had expected. 
C) lower than she had expected, and the real value of the loan is higher than she had expected. 
D) lower then she had expected, and the real value of the loan is lower than she had expected.

Question 14

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

Accepted Answer

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

Question 15

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level lower?

Accepted Answer

A) Y or V rise 
B) Y or V fall 
C) Y rises or V falls 
D) Y falls or V rises 
A) Y or V rise 
B) Y or V fall 
C) Y rises or V falls 
D) Y falls or V rises

Question 16

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A) 6 percent 
B) 5 percent 
C) 1.5 percent 
D) 1 percent 
A) 6 percent 
B) 5 percent 
C) 1.5 percent 
D) 1 percent

Question 17

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 18

Over the past 70 years, the overall price level in the U.S. has experienced a(n)

Accepted Answer

A) 4-fold increase. 
B) 8-fold increase. 
C) 12-fold increase. 
D) 16-fold increase. 
A) 4-fold increase. 
B) 8-fold increase. 
C) 12-fold increase. 
D) 16-fold increase.

Question 19

As the price level decreases, the value of money

Accepted Answer

A) increases, so people want to hold more of it. 
B) increases, so people want to hold less of it. 
C) decreases, so people want to hold more of it. 
D) decreases, so people want to hold less of it. 
A) increases, so people want to hold more of it. 
B) increases, so people want to hold less of it. 
C) decreases, so people want to hold more of it. 
D) decreases, so people want to hold less of it.

Question 20

Higher inflation makes relative prices

Accepted Answer

A) more variable, making it more likely that resources will be allocated to their best use. 
B) more variable, making it less likely that resources will be allocated to their best use. 
C) less variable, making it more likely that resources will be allocated to their best use. 
D) less variable, making it less likely that resources will be allocated to their best use. 
A) more variable, making it more likely that resources will be allocated to their best use. 
B) more variable, making it less likely that resources will be allocated to their best use. 
C) less variable, making it more likely that resources will be allocated to their best use. 
D) less variable, making it less likely that resources will be allocated to their best use.

Exam 17: Money Growth and Inflation

According to the classical dichotomy, which of the following increases when the money supply increases?

Nominal GDP measures

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

People can reduce the inflation tax by

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

Suppose there is a surplus in the money market.

Shoeleather costs arise when higher inflation rates induce people to

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS2, then

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.

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

When the money market is drawn with the value of money on the vertical axis, the price level decreases if

Suppose that M is fixed. According to the quantity equation, which of the following would make the price level lower?

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

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

Over the past 70 years, the overall price level in the U.S. has experienced a(n)

As the price level decreases, the value of money

Higher inflation makes relative prices

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 17-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 17-3. If the relevant money-supply curve is the one labeled MS₂, then