ch 17 econ

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.

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. menu costs b. arbitrary redistributions of wealth c. costs due to inflation-induced tax distortions d. the Friedman rule e. shoeleather costs

a.

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.

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.

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

b.

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. 23 percent b. 1 percent c. 0 percent d. 10 percent e. 6 percent

c.

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.

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. 7 percent b. 3 percent c. 10 percent d. 16 percent e. 13 percent

c.

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.

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

c.

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

e.

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 tax distortions b. menu costs c. costs due to confusion and inconvenience d. costs due to inflation-induced relative price variability, which misallocates resources e. shoeleather costs

e.

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

e.

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

e.

If money is neutral, _______. a. the money supply cannot be changed because it is tied to a commodity such as gold b. a change in the money supply only affects nominal variables such as prices and dollar wages 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 real variables such as real output e. an increase in the money supply does nothing

b.

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.

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

b.

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.

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

d.

Which of the following statements about inflation is not true? a. An increase in inflation increases nominal interest rates. b. Unanticipated inflation redistributes wealth. 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.