Macro Chapter 17 Quiz

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

2.0 percent.

An associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.

Her real and nominal salary have risen.

According to the Fisher effect, if inflation rises then the nominal interest rate rises.

True

U.S. prices rose at an average annual rate of about 3.6 percent over the last 80 years.

True

Which of the following is not implied by the quantity equation?

With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

Which of the following combinations of nominal interest rates and inflation implies a real interest rate of 7 percent?

a nominal interest rate of 8 percent and an inflation rate of 1 percent.

Inflation is problematic if

it distorts relative prices, causing a misallocation of resources.

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

the quantity theory and evidence from four hyperinflations during the 1920's

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.

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

and a price index are both nominal variables.