Question 1

If the nominal interest rate is 7 per cent and the inflation rate is 5 per cent, the real interest rate is 12 per cent.

Accepted Answer

A) True 
 B)False

Question 2

In the long run, an increase in the money supply tends to have an effect on real variables but no effect on nominal variables.

Accepted Answer

A) True 
 B)False

Question 3

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically, the government in countries t...

Question 4

Which of the following statements is NOT true?

Accepted Answer

A)   Deflation refers to a situation in which the price level is falling.
B)   When the price level is falling there is always an incentive to delay spending and so there is a negative effect on economic activity.
C)   Cutting interest rates to zero to fight deflation may not work because the opportunities for profitable investment are likely to be limited.
D)   Deflation is good for workers because with wages falling there will be plenty of employment opportunities.E) A) and C)
F) A) and B)

Question 5

List and define any three of the six costs of high inflation.

Accepted Answer

The costs include:
1. Shoeleather costs...

Question 6

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent.

Accepted Answer

Inflation and nominal interest...

Question 7

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A)   Rises, because one unit of currency buys more ice cream cones.
B)   Rises, because one unit of currency buys fewer ice cream cones.
C)   Falls, because one unit of currency buys more ice cream cones.
D)   Falls, because one unit of currency buys fewer ice cream cones.E) B) and C)
F) A) and D)

Question 8

When prices rise at an extraordinarily fast rate, it is called

Accepted Answer

A)   Disinflation.
B)   Deflation.
C)   Hyperinflation.
D)   Inflation.
E)   Hypo inflation.F) All of the above
G) D) and E)

Question 9

Define each of the symbols and explain the meaning of M x V = P x Y.

Accepted Answer

M is the quantity of money, V is the vel...

Question 10

If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.

Accepted Answer

A) True 
 B)False

Question 11

Some economists feel inflation is bad

Accepted Answer

A)   Because it reduces real GDP so much.
B)   Only if it is persistent.
C)   Because it redistributes income arbitrarily.
D)   Only if it is anticipated.E) B) and C)
F) B) and D)

Question 12

If the price level were to double, the quantity of money demanded would double because people would need twice as much money to cover the same transactions.

Accepted Answer

A) True 
 B)False

Question 13

Money demand depends on

Accepted Answer

A)   The price level and the interest rate.
B)   The price levels but not the interest rate.
C)   The interest rates but not the price level.
D)   Neither the price level nor the interest rate.E) B) and C)
F) All of the above

Question 14

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Accepted Answer

A) True 
 B)False

Question 15

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?

Accepted Answer

We must suppose that V is rela...

Question 16

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Accepted Answer

Inflation has raised the general price l...

Question 17

The Fisher effect is

Accepted Answer

A)   The one-for-one adjustment of the nominal interest rate to the rate of growth of real GDP.
B)   The one-for-one adjustment of the nominal interest rate to the inflation rate.
C)   The effect of changes in the velocity of money on the nominal interest rate.
D)   The effect of a current account deficit on the nominal interest rate.E) B) and D)
F) None of the above

Question 18

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 19

The term hyperinflation refers to

Accepted Answer

A)   The spread of inflation from one country to others.
B)   A decrease in the inflation rate.
C)   A period of very high inflation.
D)   Inflation accompanied by a recession.E) A) and B)
F) A) and C)

Question 20

If actual inflation turns out to be greater than people had expected, then

Accepted Answer

A)   No redistribution occurred.
B)   Wealth was redistributed to lenders from borrowers.
C)   The real interest rate is unaffected.
D)   Wealth was redistributed to borrowers from lenders.E) A) and D)
F) All of the above

Exam 28: Money Growth and Inflation

Some economists feel inflation is bad

Correct AnswerverifiedShow Answer

The term hyperinflation refers to

Correct AnswerverifiedShow Answer

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

Correct AnswerverifiedShow Answer

In the long run, an increase in the money supply tends to have an effect on real variables but no effect on nominal variables.

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 per cent and the inflation rate is 5 per cent, the real interest rate is 12 per cent.

Correct AnswerverifiedShow Answer

List and define any three of the six costs of high inflation.

Correct AnswerverifiedThe costs include: 1. Shoeleather costs...View AnswerShow Answer

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Correct AnswerverifiedShow Answer

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically, the government in countries t...View AnswerShow Answer

If actual inflation turns out to be greater than people had expected, then

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent.

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

Which of the following statements is NOT true?

Correct AnswerverifiedShow Answer

If the price level were to double, the quantity of money demanded would double because people would need twice as much money to cover the same transactions.

Correct AnswerverifiedShow Answer

When prices rise at an extraordinarily fast rate, it is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe inflation tax refers to the fact tha...View AnswerShow Answer

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?

Correct AnswerverifiedWe must suppose that V is rela...View AnswerShow Answer

Money demand depends on

Correct AnswerverifiedShow Answer

The Fisher effect is

Correct AnswerverifiedShow Answer

Define each of the symbols and explain the meaning of M x V = P x Y.

Correct AnswerverifiedM is the quantity of money, V is the vel...View AnswerShow Answer

Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?

Correct AnswerverifiedInflation has raised the general price l...View AnswerShow Answer

If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.

Correct AnswerverifiedShow Answer

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The costs include:
1. Shoeleather costs...
View Answer

Correct Answer
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Correct Answer
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Typically, the government in countries t...
View Answer

Correct Answer
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Correct Answer
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Inflation and nominal interest...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The inflation tax refers to the fact tha...
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Correct Answer
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We must suppose that V is rela...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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M is the quantity of money, V is the vel...
View Answer

Correct Answer
verified
Inflation has raised the general price l...
View Answer

Correct Answer
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