ECON 510 EXAM 2

The ex ante real interest rate is equal to the nominal interest rate: A. minus the inflation rate. B. plus the inflation rate. C. minus the expected inflation rate. D. plus the expected inflation rate.

The ex ante real interest rate is equal to the nominal interest rate: C. minus the expected inflation rate.

The ex post real interest rate will be greater than the ex ante real interest rate when the: A. rate of inflation is increasing. B. rate of inflation is decreasing. C. actual rate of inflation is greater than the expected rate of inflation. D. actual rate of inflation is less than the expected rate of inflation.

The ex post real interest rate will be greater than the ex ante real interest rate when the: D. actual rate of inflation is less than the expected rate of inflation.

The opportunity cost of holding money is the: A. nominal interest rate. B. real interest rate. C. federal funds rate. D. prevailing Treasury bill rate.

The opportunity cost of holding money is the: A. nominal interest rate.

The right of seigniorage is the right to: A. levy taxes on the public. B. borrow money from the public. C. draft citizens into the armed forces. D. print money.

The right of seigniorage is the right to: D. print money.

Variables expressed in terms of money are called ______ variables. A. real B. nominal C. endogenous D. exogenous

Variables expressed in terms of money are called ______ variables. B. nominal

Variables expressed in terms of physical units or quantities are called ______ variables. A. real B. nominal C. endogenous D. exogenous

Variables expressed in terms of physical units or quantities are called ______ variables. A. real

Which of the following would most likely be called a hyperinflation? A. Price increases averaged 300 percent per year. B. The inflation rate was 10 percent per year. C. Real GDP grew at a rate of 12 percent over a year. D. A stock market index rose by 1,000 points over a year.

Which of the following would most likely be called a hyperinflation? A. Price increases averaged 300 percent per year.

If the nominal interest rate increases, then: A. the money supply increases B. the money supply decreases C. the demand for money increases D. the demand for money decreases

If the nominal interest rate increases, then: D. the demand for money decreases

Real wages in the long run is determined by_____________ and _____________ A. labor supply; marginal productivity of labor (MPL) B. inflation; money supply C. nominal interest rate; real interest rate D. labor supply; marginal productivity of capital (MPK)

Real wages in the long run is determined by_____________ and _____________ A. labor supply; marginal productivity of labor (MPL)

The costs of reprinting catalogs and price lists because of inflation are called: A. menu costs B. shoeleather costs C. variable yardstick costs D. fixed costs

The costs of reprinting catalogs and price lists because of inflation are called: A. menu costs

The ex ante real interest rate is based on _____ inflation, while the ex post real interest rate is based on _____ inflation. A. expected; actual B. core; actual C. actual; expected D. expected; core

The ex ante real interest rate is based on _____ inflation, while the ex post real interest rate is based on _____ inflation. A. expected; actual

"Inflation tax" means that: A. as the price level rises, taxpayers are pushed into higher tax brackets B. as the price level rises, the real value of money held by the public decreases. C. as taxes increase, the rate of inflation also increases. D. in a hyperinflation, the chief source of tax revenue is often the printing of money.

"Inflation tax" means that: B. as the price level rises, the real value of money held by the public decreases.

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent. A. 1; 5 B. 5; 1 C. 1; 1 D. 5; 5

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent. D. 5; 5

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A. increasing B. decreasing C. 7 percent D. constant

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A. increasing

An example of a real variable is the: A. dollar wage a person earns B. quantity of goods produced in a year C. priced level D. nominal interest rate

An example of a real variable is the: B. quantity of goods produced in a year

Assume that some large foreign countries decide to subsidize investment by instituting an investment tax credit. Then a small country's real exchange rate: A. will fall, and its net exports will rise. B. will rise, and its net exports will fall. C. and net exports will both fall. D. and net exports will both rise.

Assume that some large foreign countries decide to subsidize investment by instituting an investment tax credit. Then a small country's real exchange rate: A. will fall, and its net exports will rise.

Because most loans are specified in nominal terms, high______ inflation hurts ______ A. expected, debtors B. expected, creditors C. unexpected, debtors D. unexpected, creditors

Because most loans are specified in nominal terms, high______ inflation hurts ______ D. unexpected, creditors

Consider the money demand function that takes the form (M / P)d = Y / (4i), where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy? A. i B. 4 C. 1 / (4i) D. 0.25

Consider the money demand function that takes the form (M / P)d = Y / (4i), where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy? B. 4

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? A. 3 percent B. 7 percent C. 10 percent D. 13 percent

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? B. 7 percent

Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______. A. large; frequently B. large; infrequently C. small; frequently D. small; infrequently

Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______. D. small; infrequently

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: A. desire to increase prices throughout the economy. B. need to generate revenue to pay for spending. C. responsibility to increase nominal interest rates by increasing expected inflation. D. inability to buy government securities through open-market operations.

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: B. need to generate revenue to pay for spending.

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M. A. prices B. real GDP C. transactions D. nominal GDP

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M. D. nominal GDP

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in: A. inflation of 1 percent and the nominal interest rate of less than 1 percent. B. inflation of 1 percent and the nominal interest rate of 1 percent. C. inflation of 1 percent and the nominal interest rate of more than 1 percent. D. both inflation and the nominal interest rate of less than 1 percent.

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in: B. inflation of 1 percent and the nominal interest rate of 1 percent.

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: A. the Organization of the Petroleum Exporting Countries (OPEC). B. the U.S. Treasury C. the Federal Reserve D. private citizens.

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: C. the Federal Reserve

If the demand for real money balances is proportional to real income, velocity will: A. increase as income increases. B. increase as income decreases. C. vary directly with the interest rate. D. be constant

If the demand for real money balances is proportional to real income, velocity will: D. be constant

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A. 3 B. 4 C. 9 D. 11

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A. 3

If the nominal interest rates in the United States and Canada are 8 percent and 12 percent, respectively, the real interest rates are the same, and the real exchange rate is fixed, then the market's expectation about the number of Canadian dollars to be received for a U.S. dollar a year from now will be that it will: A. decrease by 8 percent. B. decrease by 4 percent. C. increase by 4 percent. D. increase by 5 percent.

If the nominal interest rates in the United States and Canada are 8 percent and 12 percent, respectively, the real interest rates are the same, and the real exchange rate is fixed, then the market's expectation about the number of Canadian dollars to be received for a U.S. dollar a year from now will be that it will: C. increase by 4 percent.

If the number of dollars per Ghanaian cedis rises, this is called a(n): A. appreciation of the dollar. B. appreciation of the Ghanaian cedis. C. increase in the terms of trade. D. decrease in the terms of trade.

If the number of dollars per Ghanaian cedis rises, this is called a(n): B. appreciation of the Ghanaian cedis.

If the transactions velocity of money remains constant while the quantity of money doubles, the: A. price of the average transaction must double. B. number of transactions must remain constant. C. price of the average transaction multiplied by the number of transactions must remain constant. D. price of the average transaction multiplied by the number of transactions must double.

If the transactions velocity of money remains constant while the quantity of money doubles, the: D. price of the average transaction multiplied by the number of transactions must double.

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. A. 0.2 B. 2 C. 5 D. 10

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. C. 5

In a small open economy, if consumers shift their preference toward Japanese cars, then the equilibrium trade balance, net exports: A. fall, and the real exchange rate falls. B. fall, but the real exchange rate remains unchanged. C. remain unchanged, but the real exchange rate falls. D. increase, and the real exchange rate remains unchanged.

In a small open economy, if consumers shift their preference toward Japanese cars, then the equilibrium trade balance, net exports: C. remain unchanged, but the real exchange rate falls.

In its most general formulation, the demand function for real balances depends on the level of income and the: A. real interest rate B. nominal interest rate C. rate of inflation D. price level

In its most general formulation, the demand function for real balances depends on the level of income and the: B. nominal interest rate

In the case of an unanticipated increase in inflation: A. lenders are hurt because they get less than they expected in real terms B. lender gain because they get more than they contracted for in nominal terms. C. borrowers do not gain because they pay exactly what they contracted for in nominal terms. D. borrowers are hurt because they pay more than they contracted for in nominal terms.

In the case of an unanticipated increase in inflation: A. lenders are hurt because they get less than they expected in real terms

Inflation reduces real income in the short run when nominal wages are fixed by contracts A. True B. False

Inflation reduces real income in the short run when nominal wages are fixed by contracts A. True

When is nominal interest rate (i) equals to real interest rate(r)?

When is nominal interest rate (i) equals to real interest rate(r)? when inflation = 0

Which of the following events would cause the U.S. dollar to depreciate A. a tax cut B. an investment boom C. a tax increase abroad D. a rise in the price level

Which of the following events would cause the U.S. dollar to depreciate D. a rise in the price level