Assignment 7 ECON 121 (Chapter 30)

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate? a. 6 percent b. 5 percent c. 1.5 percent d. 1 percent

d. 1 percent

Use the graph in question 7. When the money supply curve shifts from MS1 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.

a. the equilibrium value of money decreases.

According to the classical dichotomy, when the money supply doubles which of the following double? a. the price level and nominal GDP b. the price level and real GDP c. only real GDP d. only the price level

a. the price level and nominal GDP

Use the graph in question 7. If the current money supply is located at MS1, a. there is no excess supply or excess demand if the value of money is 2. b. the equilibrium is at point C. c. there is an excess supply of money if the value of money is 1. d. None of the above is correct.

a. there is no excess supply or excess demand if the value of money is 2.

Based on the quantity equation, if M = 100, V = 3, and Y = 200, then P = a. 1. b. 1.5. c. 2. d. None of the above is correct.

b. 1.5

The price level rises from 120 to 150. What was the inflation rate? a. 30% b. 25% c. 20% d. None of the above is correct.

b. 25%

Steven puts money into an account. One year later he sees that he has 6 percent more dollars and that his money will buy 2 percent more goods. a. The nominal interest rate was 8 percent and the inflation rate was 6 percent. b. The nominal interest rate was 6 percent and the inflation rate was 4 percent. c. The nominal interest rate was 4 percent and the inflation rate was 2 percent. d. None of the above is correct.

b. The nominal interest rate was 6 percent and the inflation rate was 4 percent.

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a. excess demand for money, so the price level will rise. b. excess demand for money, so the price level will fall. c. excess supply of money, so the price level will rise. d. excess supply of money, so the price level will fall

b. excess demand for money, so the price level will fall.

As inflation rises, people will tend to a. go to the bank more often. This is known as menu costs. b. go to the bank more often. This is known as shoeleather costs. c. go to the bank less often. This is known as the inflation fallacy. d. go to the bank less often. This is known as redistribution costs.

b. go to the bank more often. This is known as shoeleather costs.

Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change in the price of a specific commodity.

b. percentage change in the consumer price index.

An increase in the price level makes the value of money a. increase, so people want to hold more of it. b. increase, so people want to hold less of it. c. decrease, so people want to hold more of it. d. decrease, so people want to hold less of it.

c. decrease, so people want to hold more of it.

You put money in the bank. The increase in the dollar value of your savings a. and the change in the number of goods you can buy with your savings are both nominal variables. b. and the change in the number of goods you can buy with your savings are both real variables. c. is a nominal variable, but the change in the number goods you can buy with your savings is a real variable. d. is a real variable, but the change in the number of goods you buy with your savings is a nominal variable.

c. is a nominal variable, but the change in the number goods you can buy with your savings is a real variable.

The supply of money is determined by a. the price level. b. the Treasury and Congressional Budget Office. c. the Federal Reserve System. d. the demand for money.

c. the Federal Reserve System.

Use the graph in question 7. When the money supply curve shifts from MS1 to MS2, the graph shows that a. the demand for goods and services decreases. b. the economy's ability to produce goods and services increases. c. the equilibrium price level increases. d. the equilibrium value of money increases.

c. the equilibrium price level increases.

under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then a. both the nominal and the real interest rate fall. b. neither the nominal nor the real interest rate fall. c. the nominal interest rate falls, but the real interest rate does not. d. the real interest rate falls, but the nominal interest rate does not.

c. the nominal interest rate falls, but the real interest rate does not.

The price of a Honda Accord a. and the price of a Honda Accord divided by the price of a Honda Civic are both real variables. b. and the price of a Honda Accord divided by the price of Honda Civic are both nominal variables. c. is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal variable. d. is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

d. is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a a. shift to the right of the money demand curve. b. shift to the left of the money demand curve. c. movement to the left along the money demand curve. d. movement to the right along the money demand curve.

d. movement to the right along the money demand curve.

Use the graph in question 7. If the money supply is MS2 and the value of money is 2, there is excess a. demand equal to the distance between A and C. b. demand equal to the distance between A and B. c. supply equal to the distance between A and C. d. supply equal to the distance between A and B.

d. supply equal to the distance between A and B

Menu costs refers to a. resources used by people to maintain lower money holdings when inflation is high. b. resources used to price shop during times of high inflation. c. the distortion in incentives created by inflation when taxes do not adjust for inflation. d. the cost of more frequent price changes induced by higher inflation.

d. the cost of more frequent price changes induced by higher inflation.

graph) If the money supply is MS2 and the value of money is 2, a. the value of money is less than its equilibrium level. b. the price level is higher than its equilibrium level. c. the quantity of money demanded is greater than the quantity of money supplied. d. the quantity of money supplied is greater than the quantity of money demanded.

d. the quantity of money supplied is greater than the quantity of money demanded.