Chapter 28 Money Growth and Inflation

Test A
1

Which of the following concerning U.S. inflation is false? a. Low inflation was viewed as a triumph of President Carters economic policy. . !here were long periods in the nineteenth century during which prices fell. c. !he U.S. pu lic has viewed inflation of even " percent as a ma#or economic pro lem. d. U.S. inflation has varied over time$ ut international data shows even more variation. %&SW'() a. Low inflation was viewed as a triumph of President Carters economic policy. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
3

!here was hyperinflation during a. 1445 to 1467 in the United States. . post World War . 8ermany. c. the 16"5s in the United States. d. %ll of the a ove are correct. %&SW'() . post World War . 8ermany. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
9

When the price level rises$ the num er of dollars needed to uy a representative as:et of goods a. decreases$ so the value of money rises. . decreases$ so the value of money falls. c. increases$ so the value of money rises. d. increases$ so the value of money falls. %&SW'() d. increases$ so the value of money falls. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
;

When the money mar:et is drawn with the value of money on the vertical a<is$ the money demand curve slopes a. upward$ ecause at higher prices people want to hold less money. . upward$ ecause open=mar:et purchases ma:e more money availa le. c. downward$ ecause at higher prices people want to hold more money. d. downward$ ecause at higher prices people want to hold less money. %&SW'() c. downward$ ecause at higher prices people want to hold more money. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
>

When the money mar:et is drawn with the value of money on the vertical a<is$ the value of money increases if a. money demand shifts right or money supply shifts left. . money demand shifts left or money supply shifts right. c. either money demand or money supply shifts right. d. either money demand or money supply shifts left. %&SW'() a. money demand shifts right or money supply shifts left. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *

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>7 Chapter 34A+oney 8rowth and .nflation

7

When the money mar:et is drawn with the value of money on the vertical a<is$ the price level increases if a. money demand shifts right or money supply shifts left. . money demand shifts left or money supply shifts right. c. either money demand or money supply shifts right. d. either money demand or money supply shifts left. %&SW'() . money demand shifts left or money supply shifts right. !*P') + ,'*1) C S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
"

% decrease in the money supply creates an e<cess a. demand for money that is eliminated y rising prices. . demand for money that is eliminated y falling prices. c. supply of money that is eliminated y rising prices. d. supply of money that is eliminated y falling prices. %&SW'() . demand for money that is eliminated y falling prices. !*P') + -.BB.CUL!*) 9 ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
4

@u ert spends C75 on a porta le C- player. a. 0oth the C75 and the C- player are real varia les. . 0oth the C75 and the C- player are nominal varia les. c. !he C75 is a nominal varia le and the C- player is a real varia le. d. !he C75 is a real varia le and the C- player is a real varia le. %&SW'() c. !he C75 is a nominal varia le and the C- player is a real varia le. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
6

Steve lowers the hourly wage he pays his employees C1. !he employees figure that$ even accounting for the decrease$ they can purchase more goods with what they earn in an hour than they could a year ago. .t follows that a. the wor:ers real and nominal wages have risen. . the wor:ers real wage rose and their nominal wage fell. c. the wor:ers real wage fell and their nominal wage rose. d. oth the real and nominal wages fell. %&SW'() . the wor:ers real wage rose and their nominal wage fell. !*P') + ,'*1) C S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
15

%ccording to the classical dichotomy$ which of the following is influenced y monetary factors? a. nominal interest rates . real 8-P c. employment d. %ll of the a ove are correct. %&SW'() a. nominal interest rates !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
11

%ccording to the classical dichotomy$ when the money supply dou les$ which of the following also dou le? a. the price level . nominal wages c. nominal 8-P d. %ll of the a ove are correct. %&SW'() d. %ll of the a ove are correct. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *

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Chapter 34A+oney 8rowth and .nflation >"

13

+onetary neutrality implies that an increase in the Duantity of money will increase a. the price level. . employment. c. the percentage of their income people save. d. &one of the a ove is correct. %&SW'() a. the price level. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
19

2elocity is computed as a. EP +FA*. . E* +FAP. c. EP *FA+. d. E* +FA2. %&SW'() c. EP *FA+. !*P') + ,'*1) ' S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
1;

!he eDuation of e<change alone implies that an increase in + could result in a. an increase in the price level. . an increase in real 8-P. c. an increase in nominal 8-P. d. %ll of the a ove are correct. %&SW'() d. %ll of the a ove are correct. !*P') + ,'*1) ' S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
1>

.f velocity and output were nearly constant$ a. the inflation rate would e much higher than the money supply growth rate. . the inflation rate would e much lower than the money supply growth rate. c. the inflation rate would e a out the same as the money supply growth rate. d. %ny of the a ove could e correct$ more information is needed. %&SW'() c. the inflation rate would e a out the same as the money supply growth rate. !*P') + ,'*1) ' S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
17

!he inflation ta< a. is an alternative to income ta<es and government orrowing. . ta<es those who hold the least amount of money most. c. is the cost to the government of printing currency. d. %ll of the a ove are correct. %&SW'() a. is an alternative to income ta<es and government orrowing. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 9 (%&-/+) *
1"

.f the money supply growth rate permanently increased from 15 percent to 35 percent we would e<pect that inflation and nominal interest rates would oth increase a. y more than 15 percentage points. . y 15 percentage points. c. ut y less than 15 percentage points. d. &one of the a ove is correct. %&SW'() . y 15 percentage points. !*P') + -.BB.CUL!*) 9 ,'*1) C S'C!./&) 1 /01'C!.2') ; (%&-/+) *

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>4 Chapter 34A+oney 8rowth and .nflation

14

%n increase in the money supply growth rate increases a. inflation$ nominal interest rates$ and real interest rates. . inflation and real interest rates$ ut does not change nominal interest rates. c. inflation and nominal interest rates$ ut does not change real interest rates. d. nominal and real interest rates$ ut does not change inflation. %&SW'() c. inflation and nominal interest rates$ ut does not change real interest rates. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') ; (%&-/+) *
16

Shoeleather costs refer to a. the cost of more freDuent price changes induced y higher inflation. . resources used to maintain lower money holdings when inflation is high. c. the distortion in resource allocation created y distortions in relative prices due to inflation. d. the distortion in incentives$ created y inflation$ y ta<es that do not ad#ust for inflation. %&SW'() . resources used to maintain lower money holdings when inflation is high. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
35

+enu costs refer to a. the distortion in incentives created y inflation when ta<es do not ad#ust for inflation. . the cost of more freDuent price changes induced y higher inflation. c. resources used y people to maintain lower money holdings when inflation is high. d. the distortion in resource allocation created y distortions in relative prices due to inflation. %&SW'() . the cost of more freDuent price changes induced y higher inflation. !*P') + ,'*le1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
31

*ou uy stoc: and its price rises more than the price levelG efore ta<es you made a nominal a. and real gain$ and you pay ta<es on the nominal gain. . and real gain$ and you pay ta<es only on the real gain. c. gain and real loss$ yet you pay ta<es on the nominal gain. d. gain and real loss$ the real loss means you pay less ta<. %&SW'() a. and real gain$ and you pay ta<es on the nominal gain. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
33

8iven a nominal interest rate of 35 percent$ in which case would you earn the highest after=ta< real interest rate? a. .nflation is > percentG the ta< rate is 35 percent. . .nflation is ; percentG the ta< rate is 95 percent. c. .nflation is 9 percentG the ta< rate is ;5 percent. d. !he after=ta< real interest rate is the same for all of the a ove. %&SW'() a. .nflation is > percentG the ta< rate is 35 percent. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
39

Which of the following inflation costs matter even when actual and e<pected inflation are the same? a. menu costs . inflation induced ta< distortions c. relative price varia ility d. %ll of the a ove are correct. %&SW'() d. %ll of the a ove are correct. !*P') + ,'*1) - -.BB.CUL!*) 9 S'C!./&) 3 /01'C!.2') > (%&-/+) *

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Chapter 34A+oney 8rowth and .nflation >6

3;

.n 1464$ prospectors on the ,londi:e (iver discovered gold. !his discovery caused an une<pected price level a. decrease$ which helped creditors at the e<pense of de tors. . decrease$ which helped de tors at the e<pense of creditors. c. increase$ which helped creditors at the e<pense of de tors. d. increase$ which helped de tors at the e<pense of creditors. %&SW'() d. increase$ which helped de tors at the e<pense of creditors. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
3>

.n order to maintain sta le prices$ the central an: must a. tightly control the money supply. . :eep unemployment low. c. sell inde<ed onds. d. %ll of the a ove are correct. %&SW'() a. tightly control the money supply. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *

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%&SW'() a. Low inflation was viewed as a triumph of President CarterHs economic policy. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
3

%&SW'() . post World War . 8ermany. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
9

%&SW'() d. increases$ so the value of money falls. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
;

%&SW'() c. downward$ ecause at higher prices people want to hold more money. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
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%&SW'() a. money demand shifts right or money supply shifts left. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
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%&SW'() . money demand shifts left or money supply shifts right. !*P') + ,'*1) C S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
"

%&SW'() . demand for money that is eliminated y falling prices. !*P') + -.BB.CUL!*) 9 ,'*1) - S'C!./&) 1 /01'C!.2') 1 (%&-/+) *
4

%&SW'() c. !he C75 is a nominal varia le and the C- player is a real varia le. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
6

%&SW'() . the wor:ersH real wage rose and their nominal wage fell. !*P') + ,'*1) C S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
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%&SW'() a. nominal interest rates !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *

11

%&SW'() d. %ll of the a ove are correct. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
13

%&SW'() a. the price level. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 3 (%&-/+) * %&SW'() c. EP *FA+. !*P') + ,'*1) ' S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
19 1;

%&SW'() d. %ll of the a ove are correct. !*P') + ,'*1) ' S'C!./&) 1 /01'C!.2') 3 (%&-/+) *
1>

%&SW'() c. the inflation rate would e a out the same as the money supply growth rate.

!*P') + ,'*1) ' S'C!./&) 1 /01'C!.2') 3 (%&-/+) *

17

%&SW'() a. is an alternative to income ta<es and government orrowing. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') 9 (%&-/+) *
1"

%&SW'() . y 15 percentage points. !*P') + -.BB.CUL!*) 9 ,'*1) C S'C!./&) 1 /01'C!.2') ; (%&-/+) *

14

%&SW'() c. inflation and nominal interest rates$ ut does not change real interest rates. !*P') + ,'*1) - S'C!./&) 1 /01'C!.2') ; (%&-/+) *
16

%&SW'() . resources used to maintain lower money holdings when inflation is high. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
35

%&SW'() . the cost of more freDuent price changes induced y higher inflation. !*P') + ,'*le1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
31

%&SW'() a. and real gain$ and you pay ta<es on the nominal gain. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
33

%&SW'() a. .nflation is > percentG the ta< rate is 35 percent. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
39

%&SW'() d. %ll of the a ove are correct. !*P') + ,'*1) - -.BB.CUL!*) 9 S'C!./&) 3 /01'C!.2') > (%&-/+) *
3;

%&SW'() d. increase$ which helped de tors at the e<pense of creditors. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *
3>

%&SW'() a. tightly control the money supply. !*P') + ,'*1) - S'C!./&) 3 /01'C!.2') > (%&-/+) *