Econ 30

Suppose that, because of inflation, people in Brazil economize on currency and go to the bank each day to withdraw their daily currency needs. This is an example of

shoesleather cost

If the price level doubles,

. the value of money has been cut by half.

Suppose the nominal interest rate is 7 per cent while the money supply is growing at a rate of 5 per cent per year. If the government increases the growth rate of the money supply from 5 per cent to 9 per cent, the Fisher effect suggests that, in the long run, the nominal interest rate should become

11 per cent.

If the real interest rate is 4 per cent, the inflation rate is 6 per cent, and the tax rate is 20 per cent, what is the after tax real interest rate?

2 %

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

3 percent

If the nominal interest rate is 6 per cent and the inflation rate is 3 per cent, the real interest rate is

3%

Which of the following costs of inflation does not occur when inflation is constant and predictable?

Arbitrary redistributions of wealth.

If money is neutral,

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

If money is neutral,

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

The quantity theory of money concludes that an increase in the money supply causes

a proportional increase in prices.

Which of the following statements is true about a situation where real incomes are rising at 3 per cent per year.

all correct

If the nominal interest rate is 7 per cent and the inflation rate is 5 per cent, the real interest rate is 12 per cent.

false

Inflation tends to stimulate saving because it raises the after tax real return to saving.

false

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

false

Countries that employ an inflation tax do so because

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

In the long run, inflation is caused by

government prints to much money

When prices rise at an extraordinarily fast rate, it is called

hyperinflation

an inflation tax

is tax on people who hold money

If the money supply grows 5 per cent, and real output grows 2 per cent, prices should rise by

less than 5 %

In the long run, the demand for money is most dependent upon

level of prices

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

menu costs

The quantity equation states that

money 3 velocity = price level 3 real output.

The velocity of money is

the rate at which money exchanges hands

An example of a real variable is

the ratio of the value of wages to the price of soda.

Inflation reduces the relative price of goods whose prices have been temporarily held constant to avoid the costs associated with changing prices.

true

If the price level doubles,

value of money gets cut in half.