Question 1

An inflation tax

Accepted Answer

A)   Is usually employed by governments with balanced budgets.
B)   None of these answers.
C)   Is an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products.
D)   Is a tax borne only by people who hold interest bearing savings accounts.
E)   Is a tax on people who hold money.F) B) and C)
G) A) and E)

Question 2

In the long run, the demand for money is most dependent upon the

Accepted Answer

A)   Level of prices.
B)   Interest rate.
C)   Availability of banking outlets.
D)   Availability of credit cards.E) A) and B)
F) A) and C)

Question 3

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

Accepted Answer

A)   3 per cent.
B)   6 per cent.
C)   9 per cent.
D)   18 per cent.
E)   None of these answers.F) B) and D)
G) A) and B)

Question 4

The supply of money is determined by

Accepted Answer

A)   The price level.
B)   The Treasury and the Budget Office.
C)   The Central Bank.
D)   The demand for money.E) All of the above
F) A) and B)

Question 5

The shoeleather costs of inflation should be approximately the same for a medical doctor and for an unemployed worker.

Accepted Answer

A) True 
 B)False

Question 6

Economists agree that

Accepted Answer

A)   Neither high inflation nor moderate inflation is very costly.
B)   Both high and moderate inflation are quite costly.
C)   High inflation is costly, but they disagree about the costs of moderate inflation.
D)   Moderate inflation is as costly as high inflation.E) None of the above
F) C) and D)

Question 7

According to the classical view, to prevent price-level changes when real output is growing by 3 per cent per year, the money supply must

Accepted Answer

A)   Decrease by 3 per cent per year.
B)   Increase by 3 per cent per year.
C)   Increase by more than 3 per cent per year.
D)   Remain constant.E) C) and D)
F) B) and C)

Question 8

Countries that employ an inflation tax do so because

Accepted Answer

A)   The government doesn't understand the causes and consequences of inflation.
B)   Government expenditures are high and the government has inadequate tax collections and difficulty borrowing.
C)   An inflation tax is the most progressive (paid by the rich)  of all taxes.
D)   An inflation tax is the most equitable of all taxes.
E)   The government has a balanced budget.F) A) and B)
G) C) and D)

Question 9

Unanticipated inflation benefits

Accepted Answer

A)   Investors at the expense of savers.
B)   Publicly quoted companies at the expense of private partnerships.
C)   Borrowers at the expense of lenders.
D)   Taxpayers at the expense of government.E) A) and B)
F) A) and C)

Question 10

An inflation tax is paid by those that hold money because inflation reduces the value of their money holdings.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

a. The central bank increases the ...

Question 12

Suppose the nominal interest rate is 7 per cent while the money supply is growing at a rate of 5 per cent per year. If the government increases the growth rate of the money supply from 5 per cent to 9 per cent, the Fisher effect suggests that, in the long run, the nominal interest rate should become

Accepted Answer

A)   4 per cent.
B)   9 per cent.
C)   11 per cent.
D)   12 per cent.
E)   16 per cent.F) C) and E)
G) A) and B)

Question 13

If real output in an economy is 1,000 units of goods per year, the money supply is €300, and each euro is spent 3 times per year, then the average price of goods is

Accepted Answer

A)   €0.90 per unit.
B)   €1.11 per unit.
C)   €1.50 per unit.
D)   €1.33 per unit.E) A) and C)
F) A) and B)

Question 14

If money is neutral

Accepted Answer

A)   An increase in the money supply does nothing.
B)   A change in the money supply only affects real variables such as real output.
C)   A change in the money supply reduces velocity proportionately; therefore there is no effect on either prices or real output.
D)   A change in the money supply only affects nominal variables such as prices and wages.
E)   The money supply cannot be changed because it is tied to a commodity such as gold.F) C) and E)
G) A) and B)

Question 15

An increase in the price level is the same as a decrease in the value of money.

Accepted Answer

A) True 
 B)False

Question 16

Since, in classical economic theory, both the velocity of money and real output are assumed to be stable,

Accepted Answer

A)   Changes in the quantity of money explain changes in the price level.
B)   Changes in the quantity of money explain changes in real GDP.
C)   Changes in the money supply cause changes in the velocity of money.
D)   Prices are fixed.E) A) and B)
F) All of the above

Question 17

An example of a real variable is

Accepted Answer

A)   The wage rate in euros.
B)   None of these answers are real variables.
C)   The price of corn.
D)   The nominal interest rate.
E)   The ratio of the value of wages to the price of fizzy drinks.F) B) and C)
G) B) and E)

Question 18

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

Accepted Answer

A)   Shoeleather costs.
B)   Costs due to confusion and inconvenience.
C)   Arbitrary redistributions of wealth.
D)   Costs due to inflation induced tax distortions.
E)   Menu costs.F) C) and D)
G) A) and B)

Question 19

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Accepted Answer

The classical dichotomy argues that nomi...

Exam 28: Money Growth and Inflation

According to the classical view, to prevent price-level changes when real output is growing by 3 per cent per year, the money supply must

Correct Answer
verified

Unanticipated inflation benefits

Correct Answer
verified

Economists agree that

Correct Answer
verified

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

Correct Answer
verified

Countries that employ an inflation tax do so because

Correct Answer
verified

Since, in classical economic theory, both the velocity of money and real output are assumed to be stable,

Correct Answer
verified

The supply of money is determined by

Correct Answer
verified

An inflation tax

Correct Answer
verified

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

Correct Answer
verified

The shoeleather costs of inflation should be approximately the same for a medical doctor and for an unemployed worker.

Correct Answer
verified

In the long run, the demand for money is most dependent upon the

Correct Answer
verified

An inflation tax is paid by those that hold money because inflation reduces the value of their money holdings.

Correct Answer
verified

If money is neutral

Correct Answer
verified

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct Answer
verified
The classical dichotomy argues that nomi...
View Answer

Suppose the nominal interest rate is 7 per cent while the money supply is growing at a rate of 5 per cent per year. If the government increases the growth rate of the money supply from 5 per cent to 9 per cent, the Fisher effect suggests that, in the long run, the nominal interest rate should become

Correct Answer
verified

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

Correct Answer
verified

a. The central bank increases the ...
View Answer

An increase in the price level is the same as a decrease in the value of money.

Correct Answer
verified

If real output in an economy is 1,000 units of goods per year, the money supply is €300, and each euro is spent 3 times per year, then the average price of goods is

Correct Answer
verified

An example of a real variable is

Correct Answer
verified

Exam 28: Money Growth and Inflation

According to the classical view, to prevent price-level changes when real output is growing by 3 per cent per year, the money supply must

Correct AnswerverifiedShow Answer

Unanticipated inflation benefits

Correct AnswerverifiedShow Answer

Economists agree that

Correct AnswerverifiedShow Answer

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

Correct AnswerverifiedShow Answer

Countries that employ an inflation tax do so because

Correct AnswerverifiedShow Answer

Since, in classical economic theory, both the velocity of money and real output are assumed to be stable,

Correct AnswerverifiedShow Answer

The supply of money is determined by

Correct AnswerverifiedShow Answer

An inflation tax

Correct AnswerverifiedShow Answer

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

Correct AnswerverifiedShow Answer

The shoeleather costs of inflation should be approximately the same for a medical doctor and for an unemployed worker.

Correct AnswerverifiedShow Answer

In the long run, the demand for money is most dependent upon the

Correct AnswerverifiedShow Answer

An inflation tax is paid by those that hold money because inflation reduces the value of their money holdings.

Correct AnswerverifiedShow Answer

If money is neutral

Correct AnswerverifiedShow Answer

According to the classical dichotomy, what changes nominal variables? What changes real variables?

Correct AnswerverifiedThe classical dichotomy argues that nomi...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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

Correct Answerverified​​ a. The central bank increases the ...View AnswerShow Answer

An increase in the price level is the same as a decrease in the value of money.

Correct AnswerverifiedShow Answer

If real output in an economy is 1,000 units of goods per year, the money supply is €300, and each euro is spent 3 times per year, then the average price of goods is

Correct AnswerverifiedShow Answer

An example of a real variable is

Correct AnswerverifiedShow Answer

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The classical dichotomy argues that nomi...
View Answer

Correct Answer
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Correct Answer
verified

a. The central bank increases the ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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