Question 1

Assume you buy stock and its price rises just as much as the price level. Before taxes, which of the following have you made?

Accepted Answer

A) a nominal and real gain, and you pay taxes on the nominal gain 
B) a nominal and real gain, but you pay taxes only on the real gain 
C) a nominal gain, but no real gain, yet you pay taxes on the nominal gain 
D) a nominal gain, but no real gain, so you pay no taxes on the nominal gain 
A) a nominal and real gain, and you pay taxes on the nominal gain 
B) a nominal and real gain, but you pay taxes only on the real gain 
C) a nominal gain, but no real gain, yet you pay taxes on the nominal gain 
D) a nominal gain, but no real gain, so you pay no taxes on the nominal gain C

Question 2

What type of variable is the price level?

Accepted Answer

A) a relative variable 
B) an actual variable 
C) a real variable 
D) a nominal variable 
A) a relative variable 
B) an actual variable 
C) a real variable 
D) a nominal variable D

Question 3

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) the distortion in resource allocation created by uncertainty concerning relative price changes created by inflation 
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) the distortion in resource allocation created by uncertainty concerning relative price changes created by inflation 
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 D

Question 4

Which of the following do shoeleather costs refer to?

Accepted Answer

A) the cost of more frequent price changes induced by higher inflation 
B) the distortion in resource allocation created by distortions in relative prices due to inflation 
C) resources used to maintain lower money holdings when inflation is high 
D) the distortion in incentives created by inflation by taxes that do not adjust for inflation 
A) the cost of more frequent price changes induced by higher inflation 
B) the distortion in resource allocation created by distortions in relative prices due to inflation 
C) resources used to maintain lower money holdings when inflation is high 
D) the distortion in incentives created by inflation by taxes that do not adjust for inflation

Question 5

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

Which of the following 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 7

If the nominal interest rate is 8 percent and the real interest rate is 3 percent, what is the inflation rate?

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 8

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

Accepted Answer

A) the Friedman Effect 
B) the Hume Effect 
C) the Fisher Effect 
D) the Ricardian equivalence effect 
A) the Friedman Effect 
B) the Hume Effect 
C) the Fisher Effect 
D) the Ricardian equivalence effect

Question 9

What is the price of a Honda Accord divided by the price of a Honda Civic 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 10

Inflation positively correlated with which of the following?

Accepted Answer

A) nominal wage growth and nominal interest rates 
B) neither nominal wage growth nor nominal interest rates 
C) nominal wage growth, but not nominal interest rates 
D) the nominal interest rate, but not nominal wage growth 
A) nominal wage growth and nominal interest rates 
B) neither nominal wage growth nor nominal interest rates 
C) nominal wage growth, but not nominal interest rates 
D) the nominal interest rate, but not nominal wage growth

Question 11

Since 1992, which of the following has the Bank of Canada done?

Accepted Answer

A) It has announced that it was targeting the money supply growth of 2 percent. 
B) It has announced a target rate of inflation of 2 percent. 
C) It has announced an inflation target close to 4 percent. 
D) It has announced its objective of maintaining a stable rate of economic growth of 2 percent. 
A) It has announced that it was targeting the money supply growth of 2 percent. 
B) It has announced a target rate of inflation of 2 percent. 
C) It has announced an inflation target close to 4 percent. 
D) It has announced its objective of maintaining a stable rate of economic growth of 2 percent.

Question 12

How is the supply of money determined?

Accepted Answer

A) by the price level 
B) by the Ministry of Finance 
C) by the Bank of Canada 
D) by the demand for money 
A) by the price level 
B) by the Ministry of Finance 
C) by the Bank of Canada 
D) by the demand for money

Question 13

In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?

Accepted Answer

A) by selling bonds on the open market, which would have raised the value of money 
B) by purchasing bonds on the open market, which would have raised the value of money 
C) by selling bonds on the open market, which would have raised the value of money. 
D) by purchasing bonds on the open market, which would have lowered the value of money. 
A) by selling bonds on the open market, which would have raised the value of money 
B) by purchasing bonds on the open market, which would have raised the value of money 
C) by selling bonds on the open market, which would have raised the value of money. 
D) by purchasing bonds on the open market, which would have lowered the value of money.

Question 14

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

Accepted Answer

A) It increases, so the value of money rises. 
B) It increases, so the value of money falls. 
C) It decreases, so the value of money rises. 
D) It decreases, so the value of money falls. 
A) It increases, so the value of money rises. 
B) It increases, so the value of money falls. 
C) It decreases, so the value of money rises. 
D) It decreases, so the value of money falls.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

Assume you buy a stock and its price rises less than the price level. Before taxes, which of the following have you made?

Accepted Answer

A) a nominal and real gain, and you pay taxes on the nominal gain 
B) a nominal gain and a real loss, and you don't have to pay taxes since you gained less than the change in the price level 
C) a nominal and a real gain, and you pay taxes on the real gain 
D) a nominal gain and a real loss, and you pay taxes on the nominal gain 
A) a nominal and real gain, and you pay taxes on the nominal gain 
B) a nominal gain and a real loss, and you don't have to pay taxes since you gained less than the change in the price level 
C) a nominal and a real gain, and you pay taxes on the real gain 
D) a nominal gain and a real loss, and you pay taxes on the nominal gain

Question 18

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 19

Which of the following terms refers to economic variables whose values are measured in monetary units?

Accepted Answer

A) dichotomous variables 
B) nominal variables 
C) classical variables 
D) real variables 
A) dichotomous variables 
B) nominal variables 
C) classical variables 
D) real variables

Question 20

When a graph of the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal. This is due to adjustments in which of the following?

Accepted Answer

A) the value of money 
B) real interest rates 
C) nominal interest rates 
D) the money supply 
A) the value of money 
B) real interest rates 
C) nominal interest rates 
D) the money supply

Assume you buy stock and its price rises just as much as the price level. Before taxes, which of the following have you made?

What type of variable is the price level?

Which of the following best defines menu costs?

Which of the following do shoeleather costs refer to?

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

Which of the following best characterizes the inflation tax?

If the nominal interest rate is 8 percent and the real interest rate is 3 percent, what is the inflation rate?

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

What is the price of a Honda Accord divided by the price of a Honda Civic called?

Inflation positively correlated with which of the following?

Since 1992, which of the following has the Bank of Canada done?

How is the supply of money determined?

In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?

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

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

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

Assume you buy a stock and its price rises less than the price level. Before taxes, which of the following have you made?

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?

Which of the following terms refers to economic variables whose values are measured in monetary units?

When a graph of the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal. This is due to adjustments in which of the following?

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 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

Assume you buy stock and its price rises just as much as the price level. Before taxes, which of the following have you made?

What type of variable is the price level?

Which of the following best defines menu costs?

Which of the following do shoeleather costs refer to?

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

Which of the following best characterizes the inflation tax?

If the nominal interest rate is 8 percent and the real interest rate is 3 percent, what is the inflation rate?

What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?

What is the price of a Honda Accord divided by the price of a Honda Civic called?

Inflation positively correlated with which of the following?

Since 1992, which of the following has the Bank of Canada done?

How is the supply of money determined?

In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?

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

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

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

Assume you buy a stock and its price rises less than the price level. Before taxes, which of the following have you made?

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?

Which of the following terms refers to economic variables whose values are measured in monetary units?

When a graph of the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal. This is due to adjustments in which of the following?

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 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