Question 1

If inflation is higher than expected,then borrowers make nominal interest payments that are less than they expected.

Accepted Answer

A) True 
 B)False

Question 2

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an example of menu costs?

Accepted Answer

A)  deciding on new prices
B)  printing new price lists
C)  advertising new prices
D)  All of the above are examples of menu costs.E) B) and D)
F) C) and D)

Question 4

Figure 31-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 
-Economic variables whose values are measured in monetary units are called

Accepted Answer

A)  dichotomous variables.
B)  nominal variables.
C)  classical variables.
D)  real variables.E) A) and B)
F) A) and C)

Question 5

Shoeleather cost refers to

Accepted Answer

A)  the cost of more frequent price changes induced by higher inflation.
B)  the distortion in resource allocation created by distortions in relative prices due to inflation.
C)  resources used to maintain lower money holdings when inflation is high.
D)  the tendency to expend more effort searching for the lowest price when inflation is high.E) None of the above
F) C) and D)

Question 6

Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.

Accepted Answer

A) True 
 B)False

Question 7

The velocity of money is

Accepted Answer

A)  the rate at which the Fed puts money into the economy.
B)  the same thing as the long-term growth rate of the money supply.
C)  the money supply divided by nominal GDP.
D)  the average number of times per year a dollar is spent.E) None of the above
F) All of the above

Question 8

People can reduce the inflation tax by

Accepted Answer

A)  reducing savings.
B)  increasing deductions on their income tax.
C)  reducing cash holdings.
D)  None of the above is correct.E) None of the above
F) All of the above

Question 9

Figure 31-1 
2 and the value of money is 2,then A) the quantity of money demanded is greater than the quantity supplied; the price level will rise. B) the quantity of money demanded is greater than the quantity supplied; the price level will fall. C) the quantity of money supplied is greater than the quantity demanded; the price level will rise. D) the quantity of money supplied is greater than the quantity demanded; the price level will fall." class="answers-bank-image d-inline" rel="preload" >

-Refer to Figure 31-1.If the money supply is MS2 and the value of money is 2,then

Accepted Answer

A)  the quantity of money demanded is greater than the quantity supplied; the price level will rise.
B)  the quantity of money demanded is greater than the quantity supplied; the price level will fall.
C)  the quantity of money supplied is greater than the quantity demanded; the price level will rise.
D)  the quantity of money supplied is greater than the quantity demanded; the price level will fall.E) A) and B)
F) B) and C)

Question 10

The value of money falls as the price level

Accepted Answer

A)  rises,because the number of dollars needed to buy a representative basket of goods rises.
B)  rises,because the number of dollars needed to buy a representative basket of goods falls.
C)  falls,because the number of dollars needed to buy a representative basket of goods rises.
D)  falls,because the number of dollars needed to buy a representative basket of goods falls.E) A) and B)
F) B) and D)

Question 11

If when the money supply changes,real output and velocity do not change,then a 2 percent increase in the money supply

Accepted Answer

A)  decreases the price level by 2 percent.
B)  decreases the price level by less than 2 percent.
C)  increases the price level by less than 2 percent.
D)  increases the price level by 2 percent.E) A) and D)
F) A) and B)

Question 12

On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

Accepted Answer

A)  and a price index are both real variables.
B)  and a price index are both nominal variables.
C)  are real variables,and a price index is a nominal variable.
D)  are nominal variables,and a price index is a real variableE) A) and D)
F) B) and C)

Question 13

The inflation rate is measured as the percentage change in a price index.

Accepted Answer

A) True 
 B)False

Question 14

Figure 31-1 
2 and the value of money is 2,then there is an excess A) demand for money that is represented by the distance between points A and C. B) demand for money that is represented by the distance between points A and B. C) supply of money that is represented by the distance between points A and C. D) supply of money that is represented by the distance between points A and B." class="answers-bank-image d-inline" rel="preload" >

-Refer to Figure 31-1.If the money supply is MS2 and the value of money is 2,then there is an excess

Accepted Answer

A)  demand for money that is represented by the distance between points A and C.
B)  demand for money that is represented by the distance between points A and B.
C)  supply of money that is represented by the distance between points A and C.
D)  supply of money that is represented by the distance between points A and B.E) B) and C)
F) B) and D)

Question 15

Which of the following is correct?

Accepted Answer

A)  If the Fed purchases bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
B)  If the Fed sells bonds in the open market,then the money supply curve shifts right.A change in the price level does not shift the money supply curve.
C)  If the Fed purchases bonds,then the money supply curve shifts right.An increase in the price level shifts the money supply curve right.
D)  If the Fed sells bonds,then the money supply curve shifts right.A decrease in the price level shifts the money supply curve right.E) A) and D)
F) A) and C)

Question 16

If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

a.
The Fed increases the money su...

Question 18

The quantity theory of money can explain hyperinflations but not moderate inflation.

Accepted Answer

A) True 
 B)False

Question 19

Figure 31-1 
1 to MS2, A) the equilibrium value of money decreases. B) the equilibrium price level decreases. C) the supply of money has decreased. D) the demand for goods and services will decrease." class="answers-bank-image d-inline" rel="preload" >

-Refer to Figure 31-1.When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)  the equilibrium value of money decreases.
B)  the equilibrium price level decreases.
C)  the supply of money has decreased.
D)  the demand for goods and services will decrease.E) A) and B)
F) None of the above

Question 20

Governments may prefer an inflation tax to some other type of tax because the inflation tax

Accepted Answer

A)  is easier to impose.
B)  reduces inflation.
C)  falls mainly on high-income individuals.
D)  reduces the real cost of government expenditure.E) B) and C)
F) All of the above

Exam 31: Money Growth and Inflation

Inflation distorts savings when real interest income,rather than nominal interest income,is taxed.

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The value of money falls as the price level

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Nominal GDP measures output of final goods and services in physical terms.

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The inflation rate is measured as the percentage change in a price index.

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The quantity theory of money can explain hyperinflations but not moderate inflation.

Correct AnswerverifiedShow Answer

Figure 31-1 -Refer to Figure 31-1.If the money supply is MS2 and the value of money is 2,then there is an excess

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People can reduce the inflation tax by

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If inflation is higher than expected,then borrowers make nominal interest payments that are less than they expected.

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Which of the following is an example of menu costs?

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

Correct Answerverified a. The Fed increases the money su...View AnswerShow Answer

If when the money supply changes,real output and velocity do not change,then a 2 percent increase in the money supply

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Governments may prefer an inflation tax to some other type of tax because the inflation tax

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Shoeleather cost refers to

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If P represents the price of goods and services measured in money,then 1/P is the value of money measured in terms of goods and services.

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On its web site,your bank posts the interest rates it is paying on savings accounts.Those posted rates

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Figure 31-1 -Refer to Figure 31-1.If the money supply is MS2 and the value of money is 2,then

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The velocity of money is

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Figure 31-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Economic variables whose values are measured in monetary units are called

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Figure 31-1 -Refer to Figure 31-1.When the money supply curve shifts from MS1 to MS2,

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Which of the following is correct?

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Figure 31-1 -Refer to Figure 31-1.If the money supply is MS₂ and the value of money is 2,then there is an excess

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a.
The Fed increases the money su...
View Answer

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Figure 31-1 -Refer to Figure 31-1.If the money supply is MS₂ and the value of money is 2,then

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Figure 31-1 -Refer to Figure 31-1.When the money supply curve shifts from MS₁ to MS₂,

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