Exam 17: Money Growth and Inflation: Part A

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In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

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Question 1

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The Fisher effect says that increases in the inflation rate lead to one-to-one increases in nominal interest rates. The quantity theory says that in the long run, inflation increases one-to-one with money supply growth. It follows that differences in nominal interest rates may be due to differences in money supply growth rates. It is reasonable to guess that much higher nominal interest rates in Venezuela and Russia indicate higher money supply growth while lower interest rates in Japan indicate lower money supply growth.

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as _____.

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Question 2

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shoeleather costs

Money neutrality states that a change in the money supply affects_ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the ___.

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Question 3

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nominal, long run

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

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Question 4

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses.They purchased the land for $100,000.They sold if for $180,000.During the time they held it the price level rose from 80 to 120.If your parents face a 25% tax rate,what was their real after-tax gain? (Hint: What's the real value of the land in current prices?)

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Question 5

List and define any two of the costs of high inflation.

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Question 6

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

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Question 7

In the long run an increase in the money supply causes the price level to _____.The price level moves in this direction because an increase in the money supply creates _ in the money market that causes people to _____ spending.

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Question 8

An increase in the price level means that a dollar buys goods and services so the value of a dollar .

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Question 9

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

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Question 10

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

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Question 11

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

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Question 12

Why did farmers in the late 1800s dislike deflation?

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Question 13

If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

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Question 14

In the U.S., taxes are paid on one’s _ gains/returns. Therefore, a _ inflation rate encourages more saving

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Question 15

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _ and real GDP to ___.

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Question 16

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

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Question 17

Some countries have experienced an extraordinarily high rate of inflation known as _. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _.

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Question 18

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _______.

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Question 19

A decrease in the value of money the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as .

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Question 20

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Exam 17: Money Growth and Inflation: Part A

In recent years Venezuela and Ukraine have had much higher nominal interest rates than the United States while Japan has had lower nominal interest rates.What would you predict is true about money growth in these other countries? Why?

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as _____.

Money neutrality states that a change in the money supply affects_______ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the _________.

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

List and define any two of the costs of high inflation.

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

In the long run an increase in the money supply causes the price level to _________.The price level moves in this direction because an increase in the money supply creates _________ in the money market that causes people to _________ spending.

An increase in the price level means that a dollar buys__________ goods and services so the value of a dollar __________.

What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level?

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

The classical dichotomy says that two groups of variables are affected by different forces.What are these two groups of variables?

Why did farmers in the late 1800s dislike deflation?

If the price level were to rise from 160 to 200,in what direction and by how much would the value of a dollar change?

In the U.S., taxes are paid on one’s _____ gains/returns. Therefore, a _____ inflation rate encourages more saving

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _______ and real GDP to _________.

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Some countries have experienced an extraordinarily high rate of inflation known as _____. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _____.

You hear an economist state the following: "The increase in the money supply will causes price to rise in the long run and will have no effect on output or any other real factors." This economist is expressing the principle of _______.

A decrease in the value of money ________the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as ________.

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Money neutrality states that a change in the money supply affects_ variables only.Most economists believe that money neutrality is a good description of how money affects the economy in the ___.

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households (relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

In the long run an increase in the money supply causes the price level to _____.The price level moves in this direction because an increase in the money supply creates _ in the money market that causes people to _____ spending.

An increase in the price level means that a dollar buys goods and services so the value of a dollar .

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.

In the U.S., taxes are paid on one’s _ gains/returns. Therefore, a _ inflation rate encourages more saving

According to the classical dichotomy and money neutrality,a doubling of the money supply,holding all else constant,causes prices to _ and real GDP to ___.

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

Some countries have experienced an extraordinarily high rate of inflation known as _. This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the _.

A decrease in the value of money the quantity of money demanded.On a graph with the value of money on the vertical axis this effect on the value of money on quantity demanded is shown as .