Question 1

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

Accepted Answer

A)  It shifts to the right, lowering the price level.
B)  It shifts to the right, raising the price level.
C)  It shifts to the left, raising the price level.
D)  It shifts to the left, lowering the price level.E) B) and C)
F) A) and C)

Question 2

Which of the following best describes the impact of open-market purchases by the Bank of Canada?

Accepted Answer

A)  The money supply and the value of money increase.
B)  The money supply increases, which makes the value of money decrease.
C)  The money supply and the value of money decrease.
D)  The money supply decreases, which makes the value of money increase.E) A) and C)
F) A) and D)

Question 3

Which of the following does the Fisher effect imply?

Accepted Answer

A)  The nominal interest rate adjusts one for one with the inflation rate.
B)  The growth rate of the money supply determines the inflation rate.
C)  Real variables are heavily influenced by the monetary system.
D)  The real interest rate adjusts one for one with the inflation rate.E) C) and D)
F) A) and C)

Question 4

Suppose that velocity and output are constant,the quantity theory and Fisher effect are correct,the nominal interest rate is 7 percent,and money growth is 2 percent.Which of the following is consistent with these facts?

Accepted Answer

A)  The real interest rate is 2 percent, and nominal wages are rising.
B)  The real interest rate is 2 percent, and real wages are rising.
C)  The real interest rate is 5 percent, and nominal wages are rising.
D)  The real interest rate is 9 percent, and real wages are rising.E) A) and B)
F) B) and D)

Question 5

In a graph having the price level P on the vertical axis and the quantity of money M on the horizontal axis and considering V and Y independent on the price level or the quantity of money demanded,draw the Mᵈ - P curve that is implied by the quantity equation.Show how the P-Mᵈ curve changes when Y changes.

Accepted Answer

When Y increases from Y₁ to Y₂,the slope...

Question 6

Since 1992,the Bank of Canada has successfully maintained the inflation rate around what level?

Accepted Answer

A)  -2 percent
B)  -1 percent
C)  1 percent
D)  2 percentE) All of the above
F) C) and D)

Question 7

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following best explains why governments may prefer an inflation tax to some other kind of tax?

Accepted Answer

A)  The inflation tax is easier to impose.
B)  The inflation tax reduces inflation.
C)  The inflation tax falls mainly on high-income individuals.
D)  The inflation tax reduces the real cost of government expenditure.E) A) and C)
F) A) and B)

Question 9

Figure 11-1
 
-Refer to the Figure 11-1.If the current money supply is located at MS₁ and the value of money is 2,what is the excess demand or supply?

Accepted Answer

A)  0
B)  1
C)  2
D)  3E) B) and C)
F) All of the above

Question 10

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Accepted Answer

Typically,the government in countries th...

Question 11

If the money supply growth rate permanently increased from 4 percent to 12 percent,what would we expect to happen to the inflation rate and the nominal interest rate?

Accepted Answer

A)  The inflation rate would increase by 8 percent, and the nominal interest rate would increase by less than 10 percent.
B)  The inflation rate would increase by less than 8 percent, and the nominal interest rate would increase by 8 percent.
C)  Both the inflation rate and the nominal interest rate would increase by 8 percent.
D)  Both the inflation rate and the nominal interest rate would increase by less than 8 percent.E) C) and D)
F) A) and B)

Question 12

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point,how would the real interest rate change?

Accepted Answer

A)  The real interest rate would decrease by 1 percentage point.
B)  The real interest rate would increase by 1 percentage point.
C)  The real interest rate would decrease by 3 percentage points.
D)  The real interest rate would increase by 3 percentage points.E) B) and C)
F) A) and B)

Question 13

You put money in an account that earns 6 percent.The inflation rate is 4 percent,and your marginal tax rate is 10 percent.Which of the following is your after-tax real rate of interest?

Accepted Answer

A)  3.4 percent
B)  1.6 percent
C)  1.4 percent
D)  1.0 percentE) C) and D)
F) B) and C)

Question 14

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Accepted Answer

A) True 
 B)False

Question 15

According to the quantity equation,if P = 15,Y = 10,and M = 20,what is V?

Accepted Answer

A)  30
B)  15
C)  7.5
D)  1.75E) A) and B)
F) C) and D)

Question 16

Use a money supply and demand diagram to answer the following problem: Everything else being the same,what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

Accepted Answer

An increase in interest rates makes the ...

Question 17

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Accepted Answer

The inflation tax refers to the fact tha...

Question 18

An assistant professor of economics gets a $100-a-month raise,but then she figures that with her current monthly salary she can't buy as many goods as she could last year.What has happened to her real and nominal wage?

Accepted Answer

A)  Her real and nominal wages have risen.
B)  Her real and nominal wages have fallen.
C)  Her real wage has risen, but her nominal wage has fallen.
D)  Her real wage has fallen, but her nominal wage has risen.E) C) and D)
F) A) and C)

Question 19

Which of the following best describes the effect of printing money to finance government expenditures on the economy?

Accepted Answer

A)  Printing money causes the value of money to rise.
B)  Printing money imposes a tax on everyone who holds money.
C)  Printing money increases the real interest rate.
D)  Printing money lowers the velocity of money.E) A) and B)
F) A) and C)

Question 20

How can inflation be measured?

Accepted Answer

A)  by the change in the consumer price index
B)  by the percentage change in the consumer price index
C)  by the percentage change in the price of a specific commodity
D)  by the change in the price of a specific commodityE) A) and D)
F) C) and D)

Exam 11: Money Growth and Inflation

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Correct Answer
verified
The inflation tax refers to the fact tha...
View Answer

Suppose that velocity and output are constant,the quantity theory and Fisher effect are correct,the nominal interest rate is 7 percent,and money growth is 2 percent.Which of the following is consistent with these facts?

Correct Answer
verified

Which of the following best describes the impact of open-market purchases by the Bank of Canada?

Correct Answer
verified

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.

Correct Answer
verified

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

Correct Answer
verified

Since 1992,the Bank of Canada has successfully maintained the inflation rate around what level?

Correct Answer
verified

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Correct Answer
verified

You put money in an account that earns 6 percent.The inflation rate is 4 percent,and your marginal tax rate is 10 percent.Which of the following is your after-tax real rate of interest?

Correct Answer
verified

Use a money supply and demand diagram to answer the following problem: Everything else being the same,what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

Correct Answer
verified
An increase in interest rates makes the ...
View Answer

If the money supply growth rate permanently increased from 4 percent to 12 percent,what would we expect to happen to the inflation rate and the nominal interest rate?

Correct Answer
verified

Correct Answer
verified
When Y increases from Y₁ to Y₂,the slope...
View Answer

How can inflation be measured?

Correct Answer
verified

According to the quantity equation,if P = 15,Y = 10,and M = 20,what is V?

Correct Answer
verified

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Correct Answer
verified
Typically,the government in countries th...
View Answer

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point,how would the real interest rate change?

Correct Answer
verified

An assistant professor of economics gets a $100-a-month raise,but then she figures that with her current monthly salary she can't buy as many goods as she could last year.What has happened to her real and nominal wage?

Correct Answer
verified

Which of the following does the Fisher effect imply?

Correct Answer
verified

Figure 11-1 -Refer to the Figure 11-1.If the current money supply is located at MS₁ and the value of money is 2,what is the excess demand or supply?

Correct Answer
verified

Which of the following best describes the effect of printing money to finance government expenditures on the economy?

Correct Answer
verified

Which of the following best explains why governments may prefer an inflation tax to some other kind of tax?

Correct Answer
verified

Exam 11: Money Growth and Inflation

What is the inflation tax,and how might it explain the creation of inflation by a central bank?

Correct AnswerverifiedThe inflation tax refers to the fact tha...View AnswerShow Answer

Suppose that velocity and output are constant,the quantity theory and Fisher effect are correct,the nominal interest rate is 7 percent,and money growth is 2 percent.Which of the following is consistent with these facts?

Correct AnswerverifiedShow Answer

Which of the following best describes the impact of open-market purchases by the Bank of Canada?

Correct AnswerverifiedShow Answer

Canadian prices rose at an average annual rate of about 4 percent over the past 70 years.

Correct AnswerverifiedShow Answer

When the money market is represented in a diagram with the value of money on the vertical axis,how does the money supply curve shift from an increase in the money supply?

Correct AnswerverifiedShow Answer

Since 1992,the Bank of Canada has successfully maintained the inflation rate around what level?

Correct AnswerverifiedShow Answer

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Correct AnswerverifiedShow Answer

You put money in an account that earns 6 percent.The inflation rate is 4 percent,and your marginal tax rate is 10 percent.Which of the following is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Use a money supply and demand diagram to answer the following problem: Everything else being the same,what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.

Correct AnswerverifiedAn increase in interest rates makes the ...View AnswerShow Answer

If the money supply growth rate permanently increased from 4 percent to 12 percent,what would we expect to happen to the inflation rate and the nominal interest rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWhen Y increases from Y₁ to Y₂,the slope...View AnswerShow Answer

How can inflation be measured?

Correct AnswerverifiedShow Answer

According to the quantity equation,if P = 15,Y = 10,and M = 20,what is V?

Correct AnswerverifiedShow Answer

Economists agree that increases in the money supply growth rate increases inflation and that inflation is undesirable.So why have there been hyperinflations and how have they been ended?

Correct AnswerverifiedTypically,the government in countries th...View AnswerShow Answer

If a country had deflation of 2 percent while the nominal interest rate increased by 1 percentage point,how would the real interest rate change?

Correct AnswerverifiedShow Answer

An assistant professor of economics gets a $100-a-month raise,but then she figures that with her current monthly salary she can't buy as many goods as she could last year.What has happened to her real and nominal wage?

Correct AnswerverifiedShow Answer

Which of the following does the Fisher effect imply?

Correct AnswerverifiedShow Answer

Figure 11-1 -Refer to the Figure 11-1.If the current money supply is located at MS₁ and the value of money is 2,what is the excess demand or supply?

Correct AnswerverifiedShow Answer

Which of the following best describes the effect of printing money to finance government expenditures on the economy?

Correct AnswerverifiedShow Answer

Which of the following best explains why governments may prefer an inflation tax to some other kind of tax?

Correct AnswerverifiedShow Answer

Correct Answer
verified
The inflation tax refers to the fact tha...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An increase in interest rates makes the ...
View Answer

Correct Answer
verified

Correct Answer
verified
When Y increases from Y₁ to Y₂,the slope...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Typically,the government in countries th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified