macro chapter 5

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

A

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.

a

The quantity equation for money, by itself: A) may be thought of as a definition for velocity. B) implies that the velocity of money is constant. C) implies that the price level is proportional to the money supply. D) implies that real gross domestic product (GDP) is proportional to the money supply.

a

Using decade-long data across countries from 2000-2010, countries with high money growth tend to have _____ inflation. A) high B) low C) constant D) decreasing

a

In Zimbabwe in the 1990s the government resorted to printing money to pay the salaries of government employees because: A) it was a means to avoid price controls. B) of high rates of inflation. C) of declining tax revenues. D) of a need to stimulate the economy.

c

Most hyperinflations end with _____ reforms that eliminate the need for _____. A) monetary; taxes B) monetary; currency C) fiscal; printing money D) fiscal; currency

c

One possible benefit of moderate inflation is: A) a reduction in boredom attributable to the changing prices. B) the elimination of menu costs. C) better functioning labor markets. D) increased certainty about the future.

c

The concept of monetary neutrality in the classical model implies that an increase in the money supply will increase: A) real GDP. B) real interest rates. C) nominal interest rates. D) both saving and investment by the same amount.

c

The demand for real money balances is generally assumed to: A) be exogenous. B) be constant. C) increase as real income increases. D) decrease as real income increases.

c

The rate of inflation is the: median level of prices. average level of prices. percentage change in the level of prices. measure of the overall level of prices.

c

Variable inflation hurts both debtors and creditors because: A) inflation makes the money-fixed assets of creditors worth less. B) inflation makes the money-fixed liabilities of debtors worth less. C) most debtors and creditors are risk averse. D) most debtors and creditors are risk neutral.

c

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) remain constant.

d

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent. A) 1 B) 3 C) 4 D) 7

d

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.

d

According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the: A) inflation rate. B) expected inflation rate. C) ex ante real interest rate. D) ex post real interest rate.

b

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then: A) the classical dichotomy still holds. B) a rise in money growth leads to a fall in consumption and a rise in investment. C) a rise in money growth leads to a rise in consumption and a fall in investment. D) a rise in money growth leads to a rise in both consumption and investment.

b

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.

b

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

c