macroecon exam 3 ch 17

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?

0 percent

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

10 percent

If the nominal interest rate is 8 percent and the inflation rate is 4 percent, the real interest rate is

4 percent

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

Arbitrary redistributions of wealth

Which of the following statements about inflation is not true?

Inflation reduces people's real purchasing power because it raises the cost of the things people buy

if money is neutral

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

an inflation tax is

a tax on everyone who holds money

Countries that employ an inflation tax do so because

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

substantial or persistent inflation is caused by

governments that print too much money

when prices rise at an extraordinarily high rate, it is called

hyperinflation

If the money supply grows 7 percent and real output grows 3 percent, prices should rise by

less than 7 percent

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

menu costs

the quantity equation states that

money x velocity= price level x real output

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

proportional increase in prices

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

shoeleather costs

in the long run, the demand for money is most dependent on

the level of prices

an example of a real variable is

the ratio of the price of eggs to the price of milk

velocity is

the speed at which the typical dollar circulates

if the price level doubles

the value of money has been reduced by half

If actual inflation turns out to be greater than people had expected, then

wealth was redistributed to borrowers from lenders