Question 1

If the demand for real money balances is proportional to real income, velocity will:

Accepted Answer

A)  increase as income increases. 
B)  increase as income decreases. 
C)  vary directly with the interest rate. 
D)  remain constant. 
A)  increase as income increases. 
B)  increase as income decreases. 
C)  vary directly with the interest rate. 
D)  remain constant.

Question 2

Under high historical inflation rates, can non-indexation of contracts be non-damaging for either party?

Accepted Answer

Yes. The real damage in a case of non-in

Question 3

The characteristic of the classical model that the money supply does not affect real variables is called:

Accepted Answer

A)  the monetary basis. 
B)  monetary policy. 
C)  the quantity theory of money. 
D)  monetary neutrality 
A)  the monetary basis. 
B)  monetary policy. 
C)  the quantity theory of money. 
D)  monetary neutrality

Question 4

Devoting resources to avoiding the costs of expected inflation leads to:

Accepted Answer

A)  eliminating the costs of expected inflation. 
B)  fewer relative price changes. 
C)  economic inefficiency. 
D)  a decrease in the transaction velocity of money. 
A)  eliminating the costs of expected inflation. 
B)  fewer relative price changes. 
C)  economic inefficiency. 
D)  a decrease in the transaction velocity of money.

Question 5

The ex post real interest rate will be greater than the ex ante real interest rate when the:

Accepted Answer

A)  rate of inflation is increasing. 
B)  rate of inflation is decreasing. 
C)  actual rate of inflation is greater than the expected rate of inflation. 
D)  actual rate of inflation is less than the expected rate of inflation. 
A)  rate of inflation is increasing. 
B)  rate of inflation is decreasing. 
C)  actual rate of inflation is greater than the expected rate of inflation. 
D)  actual rate of inflation is less than the expected rate of inflation.

Question 6

Econoland finances government expenditures with an inflation tax. a. Explain who pays the tax and how it is paid.
b. What are costs of the tax, assuming the tax rate is expected?

Accepted Answer

a. Holders of money pay the inflation ta

Question 7

The costs of reprinting catalogs and price lists because of inflation are called:

Accepted Answer

A)  menu costs. 
B)  shoeleather costs. 
C)  variable yardstick costs. 
D)  fixed costs. 
A)  menu costs. 
B)  shoeleather costs. 
C)  variable yardstick costs. 
D)  fixed costs.

Question 8

Real money balances equal the:

Accepted Answer

A)  sum of coin, currency, and balances in checking accounts. 
B)  amount of money expressed in terms of the quantity of goods and services it can purchase. 
C)  number of dollars used as a medium of exchange. 
D)  quantity of money created by the Federal Reserve. 
A)  sum of coin, currency, and balances in checking accounts. 
B)  amount of money expressed in terms of the quantity of goods and services it can purchase. 
C)  number of dollars used as a medium of exchange. 
D)  quantity of money created by the Federal Reserve.

Question 9

If nominal wages cannot be cut, then the only way to reduce real wages is by:

Accepted Answer

A)  adjustments via inflation. 
B)  unions. 
C)  legislation. 
D)  productivity increases. 
A)  adjustments via inflation. 
B)  unions. 
C)  legislation. 
D)  productivity increases.

Question 10

The classical dichotomy:

Accepted Answer

A)  cannot hold if money is "neutral." 
B)  is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money. 
C)  fully describes the world in which we live, especially in the short run. 
D)  arises because money depends on the nominal interest rate. 
A)  cannot hold if money is "neutral." 
B)  is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money. 
C)  fully describes the world in which we live, especially in the short run. 
D)  arises because money depends on the nominal interest rate.

Question 11

If the demand for money depends positively on real income and depends inversely on the nominal interest rate, what will happen to the price level today, if the central bank announces (and people believe) that it will decrease the money growth rate in the future, but it does not change the money supply today?

Accepted Answer

People will expect lower inflation in th

Question 12

Survey evidence indicates that economists worry ______ the general public does about prices increasing more rapidly than their incomes.

Accepted Answer

A)  more than 
B)  less than 
C)  about the same as 
D)  more intensely than 
A)  more than 
B)  less than 
C)  about the same as 
D)  more intensely than

Question 13

The ex ante real interest rate is equal to the nominal interest rate:

Accepted Answer

A)  minus the inflation rate. 
B)  plus the inflation rate. 
C)  minus the expected inflation rate. 
D)  plus the expected inflation rate. 
A)  minus the inflation rate. 
B)  plus the inflation rate. 
C)  minus the expected inflation rate. 
D)  plus the expected inflation rate.

Question 14

Consider two countries, Hitech and Lotech. In Hitech new arrangements for making payments, such as credit cards and ATMs, have been enthusiastically adopted by the population, thereby reducing the proportion of income that is held as real money balances. Over this period no such changes occurred in Lotech. If the rate of money growth and the growth rate of real GDP were the same in Hitech and Lotech over this period, then how would the rate of inflation differ between the two countries? Carefully explain your answer.

Accepted Answer

The rate of inflation would be higher in

Question 15

Inflation ______ the variability of relative prices and ______ allocative efficiency.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  decreases; increases 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  decreases; increases

Question 16

Which of the following is NOT an effect of expected inflation?

Accepted Answer

A)  causes lower real wages. 
B)  leads to shoeleather costs. 
C)  increases menu costs. 
D)  leads to taxing of nominal capital gains that are not real. 
A)  causes lower real wages. 
B)  leads to shoeleather costs. 
C)  increases menu costs. 
D)  leads to taxing of nominal capital gains that are not real.

Question 17

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises.

Accepted Answer

A)  more; larger 
B)  more; smaller 
C)  less; larger 
D)  less; smaller 
A)  more; larger 
B)  more; smaller 
C)  less; larger 
D)  less; smaller

Question 18

A classical economist wears a T-shirt printed with the slogan "Fast Money Raises My Interest!" Use the quantity theory of money and the Fisher equation to explain the slogan.

Accepted Answer

According to the quantity theory, if vel

Question 19

If the transactions velocity of money remains constant while the quantity of money doubles, the:

Accepted Answer

A)  price of the average transaction must double. 
B)  number of transactions must remain constant. 
C)  price of the average transaction multiplied by the number of transactions must remain constant. 
D)  price of the average transaction multiplied by the number of transactions must double. 
A)  price of the average transaction must double. 
B)  number of transactions must remain constant. 
C)  price of the average transaction multiplied by the number of transactions must remain constant. 
D)  price of the average transaction multiplied by the number of transactions must double.

Question 20

The inflation tax is paid:

Accepted Answer

A)  only by the central bank. 
B)  by all holders of money. 
C)  only by government bond holders. 
D)  equally by every household. 
A)  only by the central bank. 
B)  by all holders of money. 
C)  only by government bond holders. 
D)  equally by every household.

If the demand for real money balances is proportional to real income, velocity will:

Under high historical inflation rates, can non-indexation of contracts be non-damaging for either party?

The characteristic of the classical model that the money supply does not affect real variables is called:

Devoting resources to avoiding the costs of expected inflation leads to:

The ex post real interest rate will be greater than the ex ante real interest rate when the:

Econoland finances government expenditures with an inflation tax. a. Explain who pays the tax and how it is paid. b. What are costs of the tax, assuming the tax rate is expected?

The costs of reprinting catalogs and price lists because of inflation are called:

Real money balances equal the:

If nominal wages cannot be cut, then the only way to reduce real wages is by:

The classical dichotomy:

Survey evidence indicates that economists worry ______ the general public does about prices increasing more rapidly than their incomes.

The ex ante real interest rate is equal to the nominal interest rate:

Inflation the variability of relative prices and allocative efficiency.

Which of the following is NOT an effect of expected inflation?

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices each year and give workers raises.

A classical economist wears a T-shirt printed with the slogan "Fast Money Raises My Interest!" Use the quantity theory of money and the Fisher equation to explain the slogan.

If the transactions velocity of money remains constant while the quantity of money doubles, the:

The inflation tax is paid:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exam 5: Inflation: Its Causes, Effects, and Social Costs

If the demand for real money balances is proportional to real income, velocity will:

Under high historical inflation rates, can non-indexation of contracts be non-damaging for either party?

The characteristic of the classical model that the money supply does not affect real variables is called:

Devoting resources to avoiding the costs of expected inflation leads to:

The ex post real interest rate will be greater than the ex ante real interest rate when the:

Econoland finances government expenditures with an inflation tax. a. Explain who pays the tax and how it is paid. b. What are costs of the tax, assuming the tax rate is expected?

The costs of reprinting catalogs and price lists because of inflation are called:

Real money balances equal the:

If nominal wages cannot be cut, then the only way to reduce real wages is by:

The classical dichotomy:

Survey evidence indicates that economists worry ______ the general public does about prices increasing more rapidly than their incomes.

The ex ante real interest rate is equal to the nominal interest rate:

Inflation ______ the variability of relative prices and ______ allocative efficiency.

Which of the following is NOT an effect of expected inflation?

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises.

A classical economist wears a T-shirt printed with the slogan "Fast Money Raises My Interest!" Use the quantity theory of money and the Fisher equation to explain the slogan.

If the transactions velocity of money remains constant while the quantity of money doubles, the:

The inflation tax is paid:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Inflation the variability of relative prices and allocative efficiency.

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices each year and give workers raises.