Deck 12: Inflation, Money Growth, and Interest Rates

Question 1

The real return on money is zero.

Answer 1

False

Question 2

In the market clearing model, an increase in the money growth rate leads to an increase in the inflation rate.

Answer 2

True

Question 3

If the price level last year was 135 and this year is 142, then the inflation rate between last period and this period was:

A)4.9%.
B)7%.
C)5.1%
D)5.2%.

Answer 3

5.2%.

Question 4

In the market clearing model an increase in the money growth rate leads to a decrease in the nominal interest rate.

Question 5

If the nominal interest rate is 5% and the expected inflation rate is 2%, then the expected real rate of interest is:

A)7%.
B)3%
C)2.5%.
D)-3%.

Question 6

The unexpected inflation rate is:

A)the expected inflation rate less the actual inflation rate.
B)the expected inflation rate divided by the actual inflation rate.
C)the actual inflation rate less the expected inflation rate.
D)the actual inflation rate divided by the expected inflation rate.

Question 7

The real rate of interest is the nominal rate of interest less the expected inflation rate.

Question 8

If the price level last year was 110 and this year is 118, then the inflation rate between last period and this period was:

A)7.3%.
B)7%.
C)8%
D)6.8%.

Question 9

If the expected inflation rate is 5% and the actual inflation rate is 4%, then the unexpected inflation rate is:

A)1%.
B)9%.
C)-1%.
D)1.25%.

Question 10

The data on countries around the world show that:

A)the inflation rate is positively related to the growth of currency.
B)the inflation rate is unrelated to the growth in currency.
C)the inflation rate is inversely related to the growth of currency.
D)countries with high currency growth rates have higher real GDP.

Question 11

The actual inflation rate is:

A)the change in the price level divided by the original price level.
B)The original price level divided the change in price level.
C)the original price level divided by the new price level.
D)the new price level divided by the original price level.

Question 12

If the expected inflation rate is 3% and the unexpected inflation rate is -2%, then the actual inflation rate is:

A)2%.
B)1%.
C)-2%.
D)1.67%.

Question 13

An indexed bond is one:

A)that pays a real rate of interest.
B)that is indexed to the economic growth rate.
C)that is indexed to the expected inflation rate.
D)that pays a nominal rate of interest.

Question 14

An increase in the money growth rate affects household consumption, C.

Question 15

If the price level last year was 106 and this year is 102, then the inflation rate between last period and this period was:

A)-3.8%
B)4%.
C)3.8%
D)-3.9%.

Question 16

If the nominal interest rate is 2% and the actual inflation rate is 5%, then the actual real rate of interest is:

A)7%.
B)3%
C)2.5%.
D)-3%.

Question 17

If the expected inflation rate is 5% and the unexpected inflation rate is 4%, then the actual inflation rate is:

A)1%.
B)9%.
C)-1%.
D)1.25%.

Question 18

When the real interest rate, r, can differ from the nominal interest rate, i, then:

A)money demand depends on the real rate of interest.
B)consumption depends on the real rate of interest.
C)consumption depends on the nominal rate of interest.
D)money demand no longer depends on any interest rate.

Question 19

If the expected inflation rate is 3% and the actual inflation rate is 5%, then the unexpected inflation rate is:

A)2%.
B)8%.
C)-2%.
D)1.67%.

Question 20

The real interest rate is

A)the nominal interest rate plus the expected inflation rate.
B)the nominal interest rate divided by the expected inflation rate.
C)the nominal interest rate less the expected inflation.
D)the expected inflation rate divided by the nominal rate of interest.

Question 21

When the rate of growth rate of money is constant:

A)the inflation rate is growing.
B)the nominal interest rate is the real rate of interest plus the growth rate of money.
C)real money balance is declining.
D)all of the above.

Question 22

If the interest rate is 5% and the inflation rate is 3%, then the real rate of return on money is:

A)2%.
B)3%
C)-3%
D)zero.

Question 23

When the rate of growth rate of money is constant:

A)the inflation rate equals the growth rate of money.
B)the nominal interest rate is the real rate of interest plus the growth rate of money.
C)real money balance is fixed over time.
D)all of the above.

Question 24

The growth rate of real money balances is:

A)the growth rate of nominal money less the inflation rate.
B)the growth rate of nominal money divided by the inflation rate.
C)the growth rate of nominal money plus the inflation rate.
D)the inflation rate divided by the growth rate of nominal money.

Question 25

The nominal rate of interest on money is:

A)zero.
B)real rate of return on money less the inflation rate.
C)minus the inflation rate.
D)all of the above.

Question 26

An increase in the money growth rate in the market clearing model causes:

A)a decrease in the nominal interest rate.
B)an increase in consumption.
C)an increase in the price level.
D)all of the above.

Question 27

If the interest rate is 5% and the inflation rate is 3%, then the nominal rate of return on money is:

A)2%.
B)3%
C)5%
D)zero.

Question 28

An increase in the money growth rate in the market clearing model causes:

A)an increase in the nominal interest rate.
B)a decrease in money demand.
C)an increase in the inflation rate.
D)all of the above.

Question 29

If the interest rate is 6% and the inflation rate is 2%, then the real rate of return on money is:

A)2%.
B)4%
C)-2%
D)zero.

Question 30

An increase in the money growth rate in the market clearing model causes:

A)an increase in the nominal interest rate.
B)an increase in money demand.
C)a decrease in the price level.
D)all of the above.

Question 31

If the interest rate is 6% and the inflation rate is 2%, then the nominal rate of return on money is:

A)2%.
B)4%
C)8%
D)zero.

Question 32

The real rate of interest on money is:

A)zero.
B)the nominal rate of return on money plus the inflation rate.
C)minus the inflation rate.
D)all of the above.

Question 33

In the market clearing model money growth is modeled as:

A)random.
B)lump-sum transfers.
C)via the purchase of bonds.
D)all of the above.

Question 34

An increase in the money growth rate in the market clearing model causes:

A)a decrease in the nominal interest rate.
B)an increase in money demand.
C)an increase in the inflation rate.
D)all of the above.

Question 35

The expected rate of inflation is:

A)the real rate of interest less the nominal rate of interest.
B)the nominal interest rate on nominal bonds less the interest rate on indexed bonds.
C)the nominal rate of interest plus the real rate of interest.
D)the interest rate on indexed bonds less the nominal interest rate on nominal bonds.

Question 36

Lump sum transfers for money growth implies:

A)we need to analyze how transfer affects GDP.
B)we do not have to analyze how households adjust their behavior to attract transfers.
C)we need to analyze how transfers affect capital.
D)we need to model how households adjust their behavior to attract transfers.

Question 37

When the rate of growth rate of money is constant:

A)the inflation rate equals the growth rate of money.
B)the nominal interest rate rises.
C)real money balance is declining.
D)all of the above.

Question 38

An increase in the money growth rate in the market clearing model causes:

A)an increase in the nominal interest rate.
B)a decrease in money demand.
C)an increase in the price level.
D)all of the above.

Question 39

An increase in the money growth rate in the market clearing model causes:

A)a decrease in the nominal interest rate.
B)a decrease in money demand.
C)an increase in consumption.
D)all of the above.

Question 40

The nominal rate of interest on money is:

A)positive.
B)real rate of return on money plus the inflation rate.
C)minus the inflation rate.
D)all of the above.

Question 41

Derive the relationship between nominal and real interest rates.

Question 42

A decrease in the money growth rate in the market clearing model causes:

A)an increase in the nominal interest rate.
B)an increase in money demand.
C)an increase in the price level.
D)all of the above.

Question 43

Real revenue from printing money is approximately:

A)the nominal interest rate times real money balances.
B)the money growth rate times real money balances.
C)the real interest rate times nominal money balances.
D)the money growth rate times nominal money balances.

Question 44

A decrease in the money growth rate in the market clearing model causes:

A)a decrease in the nominal interest rate.
B)a decrease in money demand.
C)an increase in the price level.
D)all of the above.

Question 45

If the inflation rate is 2% and the nominal interest rate is 4% and the money growth rate increases to 3%, then we would expect the nominal interest rate to be:

A)6%.
B)zero.
C)5%.
D)2%.

Question 46

A decrease in the money growth rate in the market clearing model causes:

A)a decrease in the nominal interest rate.
B)an increase in money demand.
C)a decrease in the inflation rate.
D)all of the above.

Question 47

What happens in the market clearing model when the money growth rate increases?

Question 48

What is the government revenue from printing money?

Question 49

If the inflation rate is 2% and the nominal interest rate is 4% and the money growth rate increases to 5%, then we would expect the inflation rate to be:

A)6%.
B)7%.
C)5%.
D)2%.

Question 50

A decrease in the money growth rate in the market clearing model causes:

A)an increase in the nominal interest rate.
B)a decrease in money demand.
C)a decrease in the price level.
D)all of the above.

Question 51

After allowing for inflation expectations why does real money demand still depend on the nominal rate of interest?

Question 52

A decrease in the money growth rate in the market clearing model causes:

A)an increase in the nominal interest rate.
B)a decrease in money demand.
C)an increase in the inflation rate.
D)all of the above.

Question 53

A decrease in the money growth rate in the market clearing model causes:

A)a decrease in the nominal interest rate.
B)an increase in money demand.
C)a decrease in the price level.
D)all of the above.

Question 54

If the inflation rate is 3% and the nominal interest rate is 5% and the money growth rate increases to 5%, then we would expect the nominal interest rate to be:

A)10%.
B)7%.
C)zero.
D)2%.

Question 55

If the inflation rate is 3% and the nominal interest rate is 5% and the money growth rate increases to 5%, then we would expect real money balances to:

A)fall.
B)increase.
C)remain unchanged.
D)to fluctuate.

Question 56

If the inflation rate is 3% and the nominal interest rate is 5% and the money growth rate increases to 2%, then we would expect the nominal interest rate to be:

A)4%.
B)7%.
C)5%.
D)2%.

Question 57

When the rate of growth rate of money is constant:

A)the inflation rate is growing.
B)the nominal interest rate is declining.
C)real money balance is constant over time.
D)all of the above.

Question 58

What advantages are there to modeling money growth as lump-sum transfers?

Question 59

If the inflation rate is 3% and the nominal interest rate is 5% and the money growth rate decreases to 2%, then we would expect the inflation rate to be:

A)8%.
B)7%.
C)5%.
D)2%.

Question 60

If the inflation rate is 3% and the nominal interest rate is 5% and the money growth rate increases to 5%, then we would expect the inflation rate to be:

A)10%.
B)7%.
C)5%.
D)2%.