ECO chap 30

If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate? a. 11.5 percent b. 7.5 percent c. 4.5 percent d. 2.5 percent

4.5 percent

Which of the following statements about U.S. inflation is not correct? a. Low inflation was viewed as a triumph of President Carter's economic policy. b. There were long periods in the nineteenth century during which prices fell. c. The U.S. public has viewed inflation rates of even 7 percent as a major economic problem. d. The U.S. inflation rate has varied over time, but international data show even more variation.

Low inflation was viewed as a triumph of President Carter's economic policy.

The supply of money increases when a. the value of money increases. b. the interest rate increases. c. the Fed makes open-market purchases. d. None of the above is correct.

the Fed makes open-market purchases.

The supply of money is determined by a. the price level. b. the Treasury and Congressional Budget Office. c. the Federal Reserve System. d. the demand for money.

the Federal Reserve System.

With the value of money on the vertical axis, the money supply curve is a. upward-sloping. b. downward-sloping. c. horizontal. d. vertical.

vertical.

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the a. quantity theory of money. b. price-index theory of money. c. theory of hyperinflation. d. disequilibrium theory of money and inflation.

quantity theory of money.

If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be interpreted as the inflation rate. c. the supply of money influences the value of P, but the demand for money does not. d. All of the above are correct.

1/P represents the value of money measured in terms of goods and services.

According to the classical dichotomy, which of the following is affected by monetary factors? a. nominal wages b. the price level c. nominal GDP d. All of the above are correct.

All of the above are correct.

If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be regarded as the "overall price level." c. an increase in the value of money is associated with a decrease in P. d. All of the above are correct.

All of the above are correct.

The classical theory of inflation a. is also known as the quantity theory of money. b. was developed by some of the earliest economic thinkers. c. is used by most modern economists to explain the long-run determinants of the inflation rate. d. All of the above are correct.

All of the above are correct.

Which of the following is correct? a. A period of hyperinflation is a period of extraordinarily high or extraordinarily low inflation. b. A period of deflation is any period during which the inflation rate is decreasing. c. During the 1990s, U.S. inflation averaged about 2 percent per year. d. All of the above are correct.

During the 1990s, U.S. inflation averaged about 2 percent per year.

Which of the following is not correct? a. The inflation rate is measured as the percentage change in a price index. b. For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent. c. During the 19th century there were long periods of falling prices. d. Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.

For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent.

The term hyperinflation refers to a. the spread of inflation from one country to others. b. a decrease in the inflation rate. c. a period of very high inflation. d. inflation accompanied by a recession.

a period of very high inflation.

Which of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent? a. a real interest rate of 2.5 percent and an inflation rate of 2 percent b. a real interest rate of 4 percent and an inflation rate of 11 percent c. a real interest rate of 6 percent and an inflation rate of 1 percent d. a real interest rate of 5.5 percent and an inflation rate of 3 percent

a real interest rate of 6 percent and an inflation rate of 1 percent

The quantity theory of money a. is a fairly recent addition to economic theory. b. can explain both moderate inflation and hyperinflation. c. argues that inflation is caused by too little money in the economy. d. All of the above are correct.

can explain both moderate inflation and hyperinflation.

An increase in the price level makes the value of money a. increase, so people want to hold more of it. b. increase, so people want to hold less of it. c. decrease, so people want to hold more of it. d. decrease, so people want to hold less of it.

decrease, so people want to hold more of it.

Deflation a. increases incomes and enhances the ability of debtors to pay off their debts. b. increases incomes and reduces the ability of debtors to pay off their debts. c. decreases incomes and enhances the ability of debtors to pay off their debts. d. decreases incomes and reduces the ability of debtors to pay off their debts.

decreases incomes and reduces the ability of debtors to pay off their debts.

When the price level falls, the number of dollars needed to buy a representative basket of goods a. increases, so the value of money rises. b. increases, so the value of money falls. c. decreases, so the value of money rises. d. decreases, so the value of money falls.

decreases, so the value of money rises.

If the price index in some country were falling over time, economists would say that country had a. disinflation. b. deflation. c. a contraction. d. an inverted inflation.

deflation

When prices are falling, economists say that there is a. disinflation. b. deflation. c. a contraction. d. an inverted inflation.

deflation

There was hyperinflation during the a. period 1880-1896 in the United States. b. 1970s in the United States. c. early part of the current century in Zimbabwe. d. All of the above are correct.

early part of the current century in Zimbabwe.

When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an a. excess demand for money which causes the price level to rise. b. excess demand for money which causes the price level to fall. c. excess supply of money which causes the price level to rise. d. excess supply of money which causes the price level to fall.

excess supply of money which causes the price level to rise.

As the price level rises, the value of money a. falls, and people desire to hold less of it. b. falls, and people desire to hold more of it. c. rises, and people desire to hold less of it. d. rises, and people desire to hold more of it.

falls, and people desire to hold more of it.

Economists agree that a. neither high inflation nor moderate inflation is very costly. b. both high and moderate inflation are quite costly. c. high inflation is costly, but they disagree about the costs of moderate inflation. d. moderate inflation is as costly as high inflation.

high inflation is costly, but they disagree about the costs of moderate inflation.

Money demand refers to a. the total quantity of financial assets that people want to hold. b. how much income people want to earn per year. c. how much wealth people want to hold in liquid form. d. how much currency the Federal Reserve decides to print.

how much wealth people want to hold in liquid form.

When the price level rises, the number of dollars needed to buy a representative basket of goods a. increases, and so the value of money rises. b. increases, and so the value of money falls. c. decreases, and so the value of money rises. d. decreases, and so the value of money falls

increases, and so the value of money falls.

As the price level decreases, the value of money a. increases, so people want to hold more of it. b. increases, so people want to hold less of it. c. decreases, so people want to hold more of it. d. decreases, so people want to hold less of it.

increases, so people want to hold less of it.

The price level rises if either a. money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a rise in the value of money. b. money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a fall in the value of money. c. money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a rise in the value of money. d. money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

The price level falls if either a. money demand or money supply shifts rightward. b. money demand shifts rightward or money supply shifts leftward. c. money demand shifts leftward or money supply shifts rightward. d. money demand or money supply shifts leftward.

money demand shifts rightward or money supply shifts leftward.

Inflation is a. more about the value of goods than about the value of money. b. more about the value of money than about the value of goods. c. best understood by looking at the individual prices that make up price indexes. d. viewed by most economists today as a phenomenon that cannot be explained by the ideas of the "classical" economists.

more about the value of money than about the value of goods.

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a a. movement to the right along the money demand curve. b. movement to the left along the money demand curve. c. shift to the right of the money supply curve. d. shift to the left of the money supply curve.

movement to the left along the money demand curve.

The supply curve of money is vertical because the quantity of money supplied increases a. when the value of money increases. b. when the value of money decreases. c. only if people desire to hold more money. d. only if the central bank increases the money supply.

only if the central bank increases the money supply.

Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change in the price of a specific commodity.

percentage change in the consumer price index.

The value of money falls as the price level a. rises, because the number of dollars needed to buy a representative basket of goods rises. b. rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of dollars needed to buy a representative basket of goods rises. d. falls, because the number of dollars needed to buy a representative basket of goods falls.

rises, because the number of dollars needed to buy a representative basket of goods rises.

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve a. shifts rightward, causing the value of money measured in terms of goods and services to rise. b. shifts rightward, causing the value of money measured in terms of goods and services to fall. c. shifts leftward, causing the value of money measured in terms of goods and services to rise. d. shifts leftward, causing the value of money measured in terms of goods and services to fall.

shifts leftward, causing the value of money measured in terms of goods and services to rise.

When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve a. shifts rightward, causing the price level to rise. b. shifts rightward, causing the price level to fall. c. shifts leftward, causing the price level to rise. d. shifts leftward, causing the price level to fall.

shifts rightward, causing the price level to rise.

Money demand depends on a. the price level and the interest rate. b. the price level but not the interest rate. c. the interest rate but not the price level. d. neither the price level nor the interest rate.

the price level and the interest rate.

Other things the same, an increase in velocity means that a. the rate at which money changes hands falls, so the price level rises. b. the rate at which money changes hands falls, so the price level falls. c. the rate at which money changes hands rises, so the price level rises. d. the rate at which money changes hands rises, so the price level falls.

the rate at which money changes hands rises, so the price level rises.

The inflation tax refers to a. the revenue a government creates by printing money. b. higher inflation which requires more frequent price changes. c. the idea that, other things the same, an increase in the tax rate raises the inflation rate. d. taxes being indexed for inflation.

the revenue a government creates by printing money.