ECN 211 CHP 17

If the money supply grows 7 percent and real output grows 3 percent, prices should rise by _______. a. 7 percent b. less than 7 percent c. more than 7 percent d. none of the answer choices

b. less than 7 percent

An example of a real variable is _______. a. the nominal interest rate b. the ratio of the price of eggs to the price of milk c. the price of a movie ticket d. the dollar wage e. none of the answer choices

b. the ratio of the price of eggs to the price of milk

Which of the following costs of inflation does not occur when inflation is constant and predictable? a. Shoeleather costs b. Costs due to inflation-induced tax distortions c. Arbitrary redistributions of wealth d. Costs due to confusion and inconvenience e. Menu costs

c. Arbitrary redistributions of wealth

Substantial or persistent inflation is caused by _______. a. banks that have market power and refuse to lend money b. governments that raise taxes so high that it increases the cost of doing business and, hence, raises prices c. governments that print too much money d. increases in the price of inputs, such as labor and oil e. none of the answer choices

c. governments that print too much money

Suppose that, because of inflation, a business in Venezuela must calculate, print, and mail a new price list to its customers each week. This is an example of _______. a. shoeleather costs b. arbitrary redistributions of wealth c. menu costs d. the Friedman rule e. costs due to inflation-induced tax distortions

c. menu costs

The quantity equation states that _______. a. money × price level = velocity × real output b. money × real output = velocity × price level c. money × velocity = price level × real output d. none of the answer choices are correct

c. money × velocity = price level × real output

Suppose that, because of inflation, people in Lebanon economize on currency and go to the bank each day to withdraw their daily currency needs. This is an example of _______. a. costs due to inflation-induced relative price variability, which misallocates resources b. costs due to confusion and inconvenience c. shoeleather costs d. menu costs e. costs due to inflation-induced tax distortions

c. shoeleather costs

The quantity theory of money concludes that an increase in the money supply causes a _______. a. proportional decrease in velocity b. proportional increase in velocity c. proportional decrease in prices d. proportional increase in prices e. proportional increase in real output

d. proportional increase in prices

If the price level doubles, _______. a. the quantity demanded of money falls by half b. the nominal money supply has been reduced by half c. nominal income is unaffected d. the value of money has been reduced by half e. none of the answer choices are correct

d. the value of money has been reduced by half

Velocity is _______. a. highly unstable b. the annual rate of turnover of output c. the annual rate of turnover of business inventories d. the annual rate of turnover of workers in the labor market e. the speed at which the typical dollar circulates

e. the speed at which the typical dollar circulates

Which of the following statements about inflation is not true? a. Unanticipated inflation redistributes wealth. b. An increase in inflation increases nominal interest rates. c. If there is inflation, taxing nominal interest income reduces the return to saving and reduces the rate of economic growth. d. Inflation reduces people's real purchasing power because it raises the cost of the things people buy.

d. Inflation reduces people's real purchasing power because it raises the cost of the things people buy.

If the nominal interest rate is 8 percent and the inflation rate is 4 percent, the real interest rate is _______. a. 4 percent b. 8 percent c. 12 percent d. −4 percent e. none of the answer choices

a. 4 percent

Countries that employ an inflation tax do so because _______. a. government expenditures are high and the government has inadequate tax collections and difficulty borrowing b. the government has a balanced budget c. an inflation tax is the most equitable of all taxes d. an inflation tax is the most progressive (paid by higher-income individuals) of all taxes e. the government doesn't understand the causes and consequences of inflation

a. government expenditures are high and the government has inadequate tax collections and difficulty borrowing

In the long run, the demand for money is most dependent upon _______. a. the level of prices b. the availability of crypto currencies c. the availability of credit cards d. the interest rate

a. the level of prices

If actual inflation turns out to be greater than people had expected, then _______. a. wealth was redistributed to borrowers from lenders b. wealth was redistributed to lenders from borrowers c. the real interest rate is unaffected d. the real value of money has increased

a. wealth was redistributed to borrowers from lenders

If the real interest rate is 2 percent, the inflation rate is 8 percent, and the tax rate is 20 percent, what is the after-tax real interest rate? a. 1 percent b. 0 percent c. 6 percent d. 10 percent e. 23 percent

b. 0 percent

Suppose the nominal interest rate is 6 percent while the money supply is growing at a rate of 3 percent per year. Assuming real output remains fixed, if the government increases the growth rate of the money supply from 3 percent to 7 percent, the Fisher effect suggests that, in the long run, the nominal interest rate should become _______. a. 16 percent b. 10 percent c. 7 percent d. 3 percent e. 13 percent

b. 10 percent

If money is neutral, _______. a. a change in the money supply only affects real variables such as real output b. a change in the money supply only affects nominal variables such as prices and dollar wages c. the money supply cannot be changed because it is tied to a commodity such as gold d. a change in the money supply reduces velocity proportionately; therefore, there is no effect on either prices or real output e. an increase in the money supply does nothing

b. a change in the money supply only affects nominal variables such as prices and dollar wages

An inflation tax is _______. a. an explicit tax paid quarterly by businesses based on the amount of increase in the prices of their products b. a tax on everyone who holds money c. a tax on people who hold interest-bearing money market mutual fund accounts d. usually employed by governments with balanced budgets e. none of the answer choices

b. a tax on everyone who holds money

When prices rise at an extraordinarily high rate, it is called _______. a. deflation b. hyperinflation c. inflation d. disinflation e. hypoinflation

b. hyperinflation