Question 1

A small country might want to use the money of a large country rather than print its own money if the small country:

Accepted Answer

A)  is likely to be unstable, whereas the large country is likely to be stable. 
B)  is likely to be stable, whereas the large country is likely to be unstable. 
C)  needs the revenue for seigniorage. 
D)  wants to control its own inflation rate. 
A)  is likely to be unstable, whereas the large country is likely to be stable. 
B)  is likely to be stable, whereas the large country is likely to be unstable. 
C)  needs the revenue for seigniorage. 
D)  wants to control its own inflation rate.

Question 2

During hyperinflation real tax revenue of the government often drops substantially because of the:

Accepted Answer

A)  delay between when a tax is levied and when it is collected. 
B)  significantly greater menu costs of printing tax forms. 
C)  additional deductions taken for increased shoeleather costs. 
D)  greater uncertainty associated with extreme rates of inflation. 
A)  delay between when a tax is levied and when it is collected. 
B)  significantly greater menu costs of printing tax forms. 
C)  additional deductions taken for increased shoeleather costs. 
D)  greater uncertainty associated with extreme rates of inflation.

Question 3

The phrase "inflation is repudiation" applies only if:

Accepted Answer

A)  inflation is expected. 
B)  the government has no debt. 
C)  the government is a creditor. 
D)  the government is a debtor. 
A)  inflation is expected. 
B)  the government has no debt. 
C)  the government is a creditor. 
D)  the government is a debtor.

Question 4

The real return on holding money is:

Accepted Answer

A)  the real interest rate. 
B)  minus the real interest rate. 
C)  the inflation rate. 
D)  minus the inflation rate. 
A)  the real interest rate. 
B)  minus the real interest rate. 
C)  the inflation rate. 
D)  minus the inflation rate.

Question 5

Which of the following would most likely be called a hyperinflation?

Accepted Answer

A)  Price increases averaged 300 percent per year. 
B)  The inflation rate was 10 percent per year. 
C)  Real GDP grew at a rate of 12 percent over a year. 
D)  A stock market index rose by 1,000 points over a year. 
A)  Price increases averaged 300 percent per year. 
B)  The inflation rate was 10 percent per year. 
C)  Real GDP grew at a rate of 12 percent over a year. 
D)  A stock market index rose by 1,000 points over a year.

Question 6

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

Accepted Answer

A)  1 percent. 
B)  6 percent. 
C)  -4 percent. 
D)  -5 percent. 
A)  1 percent. 
B)  6 percent. 
C)  -4 percent. 
D)  -5 percent.

Question 7

In classical macroeconomic theory, the concept of monetary neutrality means that changes in the money supply do not influence real variables. Explain why changes in money growth affect the nominal interest rate, but not the real interest rate.

Accepted Answer

According to the Fisher equation, the no

Question 8

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M.

Accepted Answer

A)  prices 
B)  income 
C)  transactions 
D)  nominal GDP 
A)  prices 
B)  income 
C)  transactions 
D)  nominal GDP

Question 9

The money demand function can be written as L (i, Y). Given the Fisher equation, this means that the money demand function of the population already takes into account inflation (i = r + π). Why do you think people have a problem with inflation?

Accepted Answer

There is a difference between expected i

Question 10

If one were to own government bonds or other forms of financial assets, they would earn a real interest rate. Yet, the opportunity cost of holding money is equal to the nominal interest rate. Explain why and how.

Accepted Answer

Holding financial assets would give us r

Question 11

A variable rate of inflation is undesirable because:

Accepted Answer

A)  debtors and creditors cannot protect themselves by indexing contracts. 
B)  shoeleather costs are greater under variable inflation than under constant inflation. 
C)  menu costs are greater under variable inflation than under constant inflation. 
D)  variable inflation leads to greater uncertainty and risk as compared to constant inflation. 
A)  debtors and creditors cannot protect themselves by indexing contracts. 
B)  shoeleather costs are greater under variable inflation than under constant inflation. 
C)  menu costs are greater under variable inflation than under constant inflation. 
D)  variable inflation leads to greater uncertainty and risk as compared to constant inflation.

Question 12

The quantity equation, viewed as an identity, is a definition of the:

Accepted Answer

A)  quantity of money. 
B)  quantity of transactions. 
C)  price level. 
D)  transactions velocity of money. 
A)  quantity of money. 
B)  quantity of transactions. 
C)  price level. 
D)  transactions velocity of money.

Question 13

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.

Accepted Answer

A)  the productive capability of the economy; the money supply 
B)  the money supply; the productive capability of the economy 
C)  velocity; the money supply 
D)  the money supply; velocity 
A)  the productive capability of the economy; the money supply 
B)  the money supply; the productive capability of the economy 
C)  velocity; the money supply 
D)  the money supply; velocity

Question 14

The quantity theory of money assumes that:

Accepted Answer

A)  income is constant. 
B)  velocity is constant. 
C)  prices are constant. 
D)  the money supply is constant. 
A)  income is constant. 
B)  velocity is constant. 
C)  prices are constant. 
D)  the money supply is constant.

Question 15

The quantity equation for money, by itself:

Accepted Answer

A)  may be thought of as a definition for velocity of money. 
B)  implies that the velocity of money is constant. 
C)  implies that the price level is proportional to the money supply. 
D)  implies that real gross domestic product (GDP) is proportional to the money supply. 
A)  may be thought of as a definition for velocity of money. 
B)  implies that the velocity of money is constant. 
C)  implies that the price level is proportional to the money supply. 
D)  implies that real gross domestic product (GDP) is proportional to the money supply.

Question 16

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent.

Accepted Answer

A)  1 
B)  3 
C)  4 
D)  7 
A)  1 
B)  3 
C)  4 
D)  7

Question 17

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have ______ rates of inflation and decades of low money growth tended to have ______ rates of inflation.

Accepted Answer

A)  high; high 
B)  high; low 
C)  low; low 
D)  low; high 
A)  high; high 
B)  high; low 
C)  low; low 
D)  low; high

Question 18

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

Accepted Answer

A)  3 
B)  4 
C)  9 
D)  11 
A)  3 
B)  4 
C)  9 
D)  11

Question 19

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:

Accepted Answer

A)  the classical dichotomy still holds. 
B)  a rise in money growth leads to a fall in consumption and a rise in investment. 
C)  a rise in money growth leads to a rise in consumption and a fall in investment. 
D)  a rise in money growth leads to a rise in both consumption and investment. 
A)  the classical dichotomy still holds. 
B)  a rise in money growth leads to a fall in consumption and a rise in investment. 
C)  a rise in money growth leads to a rise in consumption and a fall in investment. 
D)  a rise in money growth leads to a rise in both consumption and investment.

Question 20

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except:

Accepted Answer

A)  shoeleather costs increase. 
B)  menu costs become larger. 
C)  relative prices do a better job of reflecting true scarcity. 
D)  tax distortions increase. 
A)  shoeleather costs increase. 
B)  menu costs become larger. 
C)  relative prices do a better job of reflecting true scarcity. 
D)  tax distortions increase.

A small country might want to use the money of a large country rather than print its own money if the small country:

During hyperinflation real tax revenue of the government often drops substantially because of the:

The phrase "inflation is repudiation" applies only if:

The real return on holding money is:

Which of the following would most likely be called a hyperinflation?

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

In classical macroeconomic theory, the concept of monetary neutrality means that changes in the money supply do not influence real variables. Explain why changes in money growth affect the nominal interest rate, but not the real interest rate.

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M.

The money demand function can be written as L (i, Y). Given the Fisher equation, this means that the money demand function of the population already takes into account inflation (i = r + π). Why do you think people have a problem with inflation?

If one were to own government bonds or other forms of financial assets, they would earn a real interest rate. Yet, the opportunity cost of holding money is equal to the nominal interest rate. Explain why and how.

A variable rate of inflation is undesirable because:

The quantity equation, viewed as an identity, is a definition of the:

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then determines real GDP and determines nominal GDP.

The quantity theory of money assumes that:

The quantity equation for money, by itself:

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent.

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have rates of inflation and decades of low money growth tended to have rates of inflation.

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except:

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

A small country might want to use the money of a large country rather than print its own money if the small country:

During hyperinflation real tax revenue of the government often drops substantially because of the:

The phrase "inflation is repudiation" applies only if:

The real return on holding money is:

Which of the following would most likely be called a hyperinflation?

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:

In classical macroeconomic theory, the concept of monetary neutrality means that changes in the money supply do not influence real variables. Explain why changes in money growth affect the nominal interest rate, but not the real interest rate.

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M.

The money demand function can be written as L (i, Y). Given the Fisher equation, this means that the money demand function of the population already takes into account inflation (i = r + π). Why do you think people have a problem with inflation?

If one were to own government bonds or other forms of financial assets, they would earn a real interest rate. Yet, the opportunity cost of holding money is equal to the nominal interest rate. Explain why and how.

A variable rate of inflation is undesirable because:

The quantity equation, viewed as an identity, is a definition of the:

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.

The quantity theory of money assumes that:

The quantity equation for money, by itself:

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent.

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have ______ rates of inflation and decades of low money growth tended to have ______ rates of inflation.

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except:

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

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then determines real GDP and determines nominal GDP.

Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have rates of inflation and decades of low money growth tended to have rates of inflation.