money growth
The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?
1 percent
Based on the quantity equation, if M = 100, V = 3, and Y = 200, then P =
1.5.
if M = 4,000, P = 1.5, and Y= 6,000, what is velocity?
2.25
The nominal interest rate is 6 percent and the real interest rate is 2 percent. What is the inflation rate?
4 percent.
If M= 10,000, P=2, and Y=20,000, then velocity=
4. Velocity will rise if money changes hands more frequently.
If the price level increased from 120 to 126, then what was the inflation rate
5 percent
Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?
8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars.
You find that to attract a sufficient number of workers you have to pay them more dollars. Given the price of your output you determine you are paying your workers more in goods than before. Which of the following has risen?
The real and nominal value of the wages you pay.
Which of the following is accurate? Monetary policy is neutral in both the short run and the long run. Though monetary policy is neutral in the long run, it may have effects on real variables in the short run. Monetary policy has profound effects on real variables in both the short run and the long run. Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.
Though monetary policy is neutral in the long run, it may have effects on real variables in the short run.
The classical dichotomy refers to the idea that the supply of money
determines nominal variables, but not real variables.
Monetary neutrality means that a change in the money supply
does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also
either a rise in output or a fall in velocity.
Suppose an economy produces only ice cream cones. If the price level rises, the value of currency
falls, because one unit of currency buys fewer ice cream cones.
Wealth is redistributed from debtors to creditors when inflation was expected to be
high and it turns out to be low.
Money demand refers to
how much wealth people want to hold in liquid form.
In 1898, prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level
increase that benefited debtors at the expense of creditors.
The principle of monetary neutrality implies that an increase in the money supply will
increase the price level, but not real GDP.
Monetary neutrality implies that an increase in the quantity of money will
increase the price level.
Open-market purchases by the Fed make the money supply
increase, which makes the value of money decrease.
The source of hyperinflation is primarily
increases in money-supply growth.
If the CPI rises, the number of dollars needed to buy a representative basket of goods
increases, and so the value of money falls.
As the price level decreases, the value of money
increases, so people want to hold less of it.
The real interest rate is 8 percent and the nominal interest rate is 10.5 percent. Is there inflation or deflation? What is the inflation or deflation rate?
inflation; 2.5 percent
The classical theory of inflation
is also known as the quantity theory of money. was developed by some of the earliest economic thinkers. is used by most modern economists to explain the long-run determinants of the inflation rate. (All of the above are correct.)
The inflation tax
is an alternative to income taxes and government borrowing. taxes most those who hold the most money. is the revenue created when the government prints money. All of the above are correct.
When inflation rises, people will desire to hold
less money and will go to the bank more frequently.
Between 1880 and 1886, prices that were
lower than expected transferred wealth from debtors to creditors.
When inflation rises, firms make
more frequent price changes. This raises their menu costs.
When inflation rises, people tend to go to the bank
more often, giving rise to shoeleather costs.
Most economists believe the principle of monetary neutrality is
mostly relevant to the long run.
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
nominal GDP would rise by 5 percent; real GDP would be unchanged.
In the U.S. people are required to pay taxes on
nominal interest earnings, irrespective of their real interest earnings.
According to the classical dichotomy, which of the following is influenced by monetary factors?
nominal interest rates
The price level is a
nominal variable
Economic variables whose values are measured in monetary units are called
nominal variables.
According to the classical dichotomy, which of the following is influenced by monetary factors?
nominal wages
According to the classical dichotomy, which of the following is affected by monetary factors?
nominal wages the price level nominal GDP (All of the above are correct.)
Inflation can be measured by the
percentage change in the consumer price index.
In the fourteenth century, the western African emperor kankan musa traveled to cairo where he gave away much gold, which was in use as a medium of echange. we would predict that this increase in gold
raised the price level, but decreased the value of gold in Cairo.
According to the classical dichotomy, which of the following is not influenced by monetary factors?
real GDP
Economic variables whose values are measured in goods are called
real variables.
Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your
real wage is lower.
People can reduce the inflation tax by
reducing cash holdings.
The supply of money increases when
the Fed makes open-market purchases
The velocity of money is
the average number of times per year a dollar is spent.
Nominal GDP measures
the dollar value of the economy's output of final goods and services.
If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then
the expected real interest rate is 7 percent.
In which case below does a person's purchasing power from saving increase the least?
the nominal interest rate = 10% and inflation = 8%
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
the nominal interest rate rises, but the real interest rate does not.
Banks advertise
the nominal interest rate, which is how fast the dollar value of savings grows.
According to the classical dichotomy, when the money supply doubles which of the following doubles?
the price level and nominal GDP
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
the price level and nominal wages
Money demand depends on
the price level and the interest rate.
In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then
the price level would rise, so the value of money would fall.
According to the classical dichotomy, which of the following increases when the money supply increases?
the real interest rate real GDP the real wage None of the above increases.
If a country experienced deflation, then
the real interest rate would be greater than the nominal interest rate.
The inflation tax refers to
the revenue a government creates by printing money.
The shoeleather cost of inflation refers to
the waste of resources used to maintain lower money holdings.
Inorder to maintain stable prices, a central bank must
tightly control the money supply.
According to the classical dichotomy, which of the following is not influenced by monetary factors?
unemployment
Wealth is redistributed from creditors to debtors when inflation is
unexpectedly high.
If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 3 times per year, then according to the quantity equation, the average price level is
$0.90.
Velocity is computed as
(P x Y) /M
Which of the following is correct? The classical dichotomy separates real and nominal variables. Monetary neutrality is the proposition that changes in the money supply do not change real variables. When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works. All of the above are correct.
All of the above are correct.
The quantity theory of money
Can explain both moderate inflation and hyperinflation
When prices are falling, economist day that there is
Deflation
Shawn puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods.
The nominal interest rate was 5 percent and the inflation rate was -1 percent.
The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the
Fisher Effect.
In which of the following cases was the inflation rate 10 percent over the last year
One year ago the price index had a value of 120 and now it has a value of 132.
Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?
People who held money would feel poorer.b. Prices would rise. c. People who had lent money at a fixed interest rate would feel poorer. d. All of the above are correct.
On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.
The $80 is a nominal variable. The quantity of shoes is a real variable
Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?
The country has high money supply growth. Inflation is acting like a tax on everyone who holds money. The government is printing money to finance its expenditures. All of the above are correct.
The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.
The dollar amount you pay is a nominal value. The number of goods you give up is a real value.
The supply of money is determined by
The federal reserve system
You bought some shares of stock and, over the next year, the price per share increased by 5 percent and the price level increased by 8 percent. Before taxes, you experienced
a nominal gain and a real loss, and you paid taxes on the nominal gain.
You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced
a nominal gain, but no real gain, and you paid taxes on the nominal gain.
The term hyperinflation refers to
a period of very high inflation.
When we assume that the supply of money is a variable that the central bank controls, we
are ignoring the complications introduced by the role of the banking system
Interest rates adjusted for the effects of inflation
are real variables; inflation is a nominal variable.
Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
both the classical dichotomy and the quantity theory of money.
The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the
classical dichotomy.
If inflation is higher then what was expected
creditors receive a lower real interest rate than they had anticipated.
If the economy unexpectedly went from inflation to deflation
creditors would gain at the expense of debtors.
Which of the following is an example of menu costs?
deciding on new prices printing new price lists advertising new prices All of the above are examples of menu costs.
For a given real interest rate, an increase in inflation makes the after-tax real interest rate
decrease, which discourages savings.
Deflation
decreases incomes and reduces the ability of debtors to pay off their debts.
When the price level rises, the number of dollars needed to buy a representative basket of goods
decreases, and so the value of money rises.
As the price level rises, the value of money
decreases, so people want to hold more of it.
When the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises.
A decrease in the money supply creates an excess
demand for money that is eliminated by falling prices.
