Question 1

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before-tax real capital gain?

Accepted Answer

A)   $1,300 - $1,000(1.05)  and this is the gain he is to report on his income tax
B)   $1,300 - $1,000(1.05)  but he is to report a $300 gain on his income tax
C)   $1,300 - $1,000(1.07)  and this is the gain he is to report on his income tax
D)   $1,300 - $1,000(1.07)  but he is to report a $300 gain on his income taxE) A) and B)
F) A) and C)

Question 2

Wealth is redistributed from debtors to creditors when inflation was expected to be

Accepted Answer

A)   high and it turns out to be high.
B)   low and it turns out to be low.
C)   low and it turns out to be high.
D)   high and it turns out to be low.E) B) and C)
F) A) and D)

Question 3

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

Accepted Answer

A)   11.5 percent
B)   7 percent
C)   4.5 percent
D)   2.5 percentE) A) and C)
F) A) and B)

Question 4

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Accepted Answer

A)   $50
B)   $75
C)   $100
D)   $200E) All of the above
F) A) and B)

Question 5

U.S. prices rose at an average annual rate of about 4 percent over the last 70 years.

Accepted Answer

A) True 
 B)False

Question 6

From the early 1980's through the 1990's, the nominal interest rate

Accepted Answer

A)   fell because the Fed got inflation under control.
B)   fell because the Fed let inflation get out of control.
C)   rose because the Fed got inflation under control.
D)   rose because the Fed let inflation get out of control.E) B) and D)
F) A) and D)

Question 7

When the money market is drawn with the value of money on the vertical axis, if there is a surplus of money then

Accepted Answer

A)   the value of money rises which will make people desire to hold more money.
B)   the value of money rises which will make people desire to hold less money.
C)   the value of money falls which will make people desire to hold more money.
D)   the value of money falls which will make people desire to hold less money.E) A) and B)
F) A) and C)

Question 8

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Accepted Answer

A)   increases, so the quantity of money demanded increases.
B)   increases, so the quantity of money demanded decreases.
C)   decreases, so the quantity of money demanded decreases.
D)   decreases, so the quantity of money demanded increases.E) A) and C)
F) A) and D)

Question 9

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Accepted Answer

Inflation and nominal interest...

Question 10

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Accepted Answer

A)   Austria in the 1920's.
B)   Hungary in the 1920's.
C)   Poland in the 1920's.
D)   All of the above are correct.E) A) and C)
F) None of the above

Question 11

For a given real interest rate, a decrease in the inflation rate would

Accepted Answer

A)   decrease the after-tax real interest rate and so decrease saving.
B)   decrease the after-tax real interest rate and so increase saving.
C)   increase the after-tax real interest rate and so decrease saving.
D)   increase the after-tax real interest rate and so increase saving.E) A) and D)
F) B) and C)

Question 12

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Accepted Answer

A) True 
 B)False

Question 13

Higher inflation makes relative prices

Accepted Answer

A)   more variable, making it more likely that resources will be allocated to their best use.
B)   more variable, making it less likely that resources will be allocated to their best use.
C)   less variable, making it more likely that resources will be allocated to their best use.
D)   less variable, making it less likely that resources will be allocated to their best use.E) A) and B)
F) A) and C)

Question 14

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Accepted Answer

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.E) B) and C)
F) A) and D)

Question 15

When we assume that the supply of money is a variable that the central bank controls, we

Accepted Answer

A)   must then assume as well that the demand for money is not influenced by the value of money.
B)   must then assume as well that the price level is unrelated to the value of money.
C)   are ignoring the fact that, in the real world, households are also suppliers of money.
D)   are ignoring the complications introduced by the role of the banking system.E) B) and C)
F) A) and C)

Question 16

You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)   3 percent
B)   3.75 percent
C)   5 percent
D)   6 percentE) A) and D)
F) All of the above

Question 17

High and unexpected inflation has a greater cost

Accepted Answer

A)   for those who borrow than for those who save.
B)   for those who hold a little money than for those who hold a lot of money.
C)   for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 18

If money demand shifts right, the price level falls.

Accepted Answer

A) True 
 B)False

Question 19

Figure 12-1
 1, then A)  there is no excess supply or excess demand if the value of money is 2. B)  the equilibrium is at point C. C)  there is an excess supply of money if the value of money is 1. D)  None of the above is correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-1. If the current money supply is MS1, then

Accepted Answer

A)   there is no excess supply or excess demand if the value of money is 2.
B)   the equilibrium is at point C.
C)   there is an excess supply of money if the value of money is 1.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 20

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent. What is the real interest rate?

Accepted Answer

A)   7 percent
B)   5.5 percent
C)   1.75 percent
D)   1.5 percentE) A) and B)
F) A) and C)

Exam 12: Money Growth and Inflation

If money demand shifts right, the price level falls.

Correct AnswerverifiedShow Answer

From the early 1980's through the 1990's, the nominal interest rate

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, if there is a surplus of money then

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Correct AnswerverifiedShow Answer

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

Correct AnswerverifiedShow Answer

Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0. What is Harvey's before-tax real capital gain?

Correct AnswerverifiedShow Answer

Higher inflation makes relative prices

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Correct AnswerverifiedShow Answer

Wealth is redistributed from debtors to creditors when inflation was expected to be

Correct AnswerverifiedShow Answer

You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Correct AnswerverifiedShow Answer

For a given real interest rate, a decrease in the inflation rate would

Correct AnswerverifiedShow Answer

High and unexpected inflation has a greater cost

Correct AnswerverifiedShow Answer

Kaitlyn purchased one share of Northwest Energy stock for $200; one year later she sold that share for $400. The inflation rate over the year was 50 percent. The tax rate on nominal capital gains is 50 percent. What was the tax on Kaitlyn's capital gain?

Correct AnswerverifiedShow Answer

Figure 12-1 -Refer to Figure 12-1. If the current money supply is MS1, then

Correct AnswerverifiedShow Answer

Suppose that velocity and output are constant and that the quantity theory and the Fisher effect both hold. What happens to inflation, real interest rates, and nominal interest rates when the money supply growth rate increases from 5 percent to 10 percent?

Correct AnswerverifiedInflation and nominal interest...View AnswerShow Answer

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

Correct AnswerverifiedShow Answer

The nominal interest rate is 3.5 percent and the inflation rate is 2 percent. What is the real interest rate?

Correct AnswerverifiedShow Answer

U.S. prices rose at an average annual rate of about 4 percent over the last 70 years.

Correct AnswerverifiedShow Answer

When we assume that the supply of money is a variable that the central bank controls, we

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 12-1 -Refer to Figure 12-1. If the current money supply is MS₁, then

Correct Answer
verified

Correct Answer
verified
Inflation and nominal interest...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified