Question 1

Steve purchases some land for $30,000.He maintains it,but makes no improvements to it.One year later he sells it for $32,000.Stephanie puts $30,000 in a savings account that pays 6% interest.Steve has to pay the 50% capital gains tax,Stephanie is in the 35% tax bracket.The inflation rate was 2%.Who had the higher before-tax real gain and who had the higher after-tax real gain?

Accepted Answer

A)   Steve had both the higher before-tax real gain and the higher after-tax real gain.
B)   Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
C)   Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain.
D)   Stephanie had both the higher before-tax real gain and the higher after-tax real gain.E) B) and C)
F) A) and D)

Question 2

Studies have found which of the following economic terms mentioned most often in U.S.newspapers?

Accepted Answer

A)   Unemployment
B)   Productivity
C)   Inflation
D)   Monetary policyE) All of the above
F) C) and D)

Question 3

Which of the following is correct?

Accepted Answer

A)   The Continental Congress used the inflation tax to help finance the American Revolution.
B)   The inflation is today a principal source of revenue for the U.S.government.
C)   There is no way a person can avoid the inflation tax.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 4

Shoeleather costs arise when higher inflation rates induce people to

Accepted Answer

A)   spend more time looking for bargains.
B)   spend less time looking for bargains.
C)   hold more money.
D)   hold less money.E) None of the above
F) A) and B)

Question 5

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

Accepted Answer

A) True 
 B)False

Question 6

Figure 17-1 1 to MS2, A)  the demand for goods and services decreases. B)  the economy's ability to produce goods and services increases. C)  the equilibrium price level decreases. D)  None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1.When the money supply curve shifts from MS1 to MS2,

Accepted Answer

A)   the demand for goods and services decreases.
B)   the economy's ability to produce goods and services increases.
C)   the equilibrium price level decreases.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 7

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Accepted Answer

A)   Inflation is 3 percent;the tax rate is 25 percent.
B)   Inflation is 2 percent;the tax rate is 50 percent.
C)   Inflation is 1 percent;the tax rate is 75 percent.
D)   The after-tax real interest rate is the same for all of the above.E) A) and B)
F) C) and D)

Question 8

When the money market is drawn with the value of money on the vertical axis,if the money supply rises

Accepted Answer

A)   the price level and the value of money rise.
B)   the price level rises and the value of money falls.
C)   the price level falls and the value of money rises.
D)   the price level and the value of money fall.E) None of the above
F) All of the above

Question 9

Figure 17-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1,then the equilibrium value of money is A)  0.5 and the equilibrium price level is 2. B)  2 and the equilibrium price level is 0.5. C)  0.5 and the equilibrium price level cannot be determined from the graph. D)  2 and the equilibrium price level cannot be determined from the graph." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-2.If the relevant money-demand curve is the one labeled MD1,then the equilibrium value of money is

Accepted Answer

A)   0.5 and the equilibrium price level is 2.
B)   2 and the equilibrium price level is 0.5.
C)   0.5 and the equilibrium price level cannot be determined from the graph.
D)   2 and the equilibrium price level cannot be determined from the graph.E) A) and B)
F) A) and C)

Question 10

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if:
a.the Fed increases the money supply.
b.people decide to demand less money at each value of money.

Accepted Answer

a.The Fed increases the money supply....

Question 11

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Accepted Answer

A)   menu costs and shoeleather costs.
B)   menu costs but not shoeleather costs
C)   shoeleather costs but not menu costs
D)   menu costs but not shoeleather costs .E) None of the above
F) B) and C)

Question 12

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 13

Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while hus money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Accepted Answer

A)   3.5 percent and a real interest rate of 5 percent.
B)   3.5 percent and a real interest rate of 2 percent.
C)   5 percent and a real interest rate of 3.5 percent
D)   5 percent and a real interest rate of 2 percentE) None of the above
F) All of the above

Question 14

If the Fed conducts open market sales,the equilibrium value of money decreases and the equilibrium price level increases.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is accurate?

Accepted Answer

A)   Monetary policy is neutral in both the short run and the long run.
B)   Though monetary policy is neutral in the long run,it may have effects on real variables in the short run.
C)   Monetary policy has profound effects on real variables in both the short run and the long run.
D)   Monetary policy has profound effects on real variables in the long run,but is neutral in the short run.E) B) and D)
F) B) and C)

Question 16

According to the assumptions of the quantity theory of money,if the money supply decreases by 7 percent,then

Accepted Answer

A)   nominal and real GDP would fall by 7 percent.
B)   nominal GDP would fall by 7 percent;real GDP would be unchanged.
C)   nominal GDP would be unchanged;real GDP would fall by 7 percent.
D)   neither nominal GDP nor real GDP would change.E) B) and C)
F) C) and D)

Question 17

Open-market purchases by the Fed make the money supply

Accepted Answer

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

Question 18

Figure 17-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. 1;also suppose the economy's real GDP is 30,000 for the year.If the money market is in equilibrium,then how many times per year is the typical dollar bill used to pay for a newly produced good or service? A)  4 B)  6 C)  8 D)  12" class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-2.Suppose the relevant money-demand curve is the one labeled MD1;also suppose the economy's real GDP is 30,000 for the year.If the money market is in equilibrium,then how many times per year is the typical dollar bill used to pay for a newly produced good or service?

Accepted Answer

A)   4
B)   6
C)   8
D)   12E) A) and B)
F) All of the above

Question 19

Printing money to finance government expenditures

Accepted Answer

A)   causes the value of money to rise.
B)   imposes a tax on everyone who holds money.
C)   is the principal method by which the U.S.government finances its expenditures.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 20

As the price level falls,the value of money falls.

Accepted Answer

A) True 
 B)False

Exam 30: Money Growth and Inflation

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 Answer
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Figure 17-1 -Refer to Figure 17-1.When the money supply curve shifts from MS₁ to MS₂,

Correct Answer
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Shoeleather costs arise when higher inflation rates induce people to

Correct Answer
verified

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Correct Answer
verified

Printing money to finance government expenditures

Correct Answer
verified

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a.the Fed increases the money supply. b.people decide to demand less money at each value of money.

Correct Answer
verified

a.The Fed increases the money supply....
View Answer

Which of the following is correct?

Correct Answer
verified

If the Fed conducts open market sales,the equilibrium value of money decreases and the equilibrium price level increases.

Correct Answer
verified

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

Correct Answer
verified

When the money market is drawn with the value of money on the vertical axis,if the money supply rises

Correct Answer
verified

Correct Answer
verified

Studies have found which of the following economic terms mentioned most often in U.S.newspapers?

Correct Answer
verified

Which of the following is accurate?

Correct Answer
verified

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Correct Answer
verified

Correct Answer
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According to the assumptions of the quantity theory of money,if the money supply decreases by 7 percent,then

Correct Answer
verified

Open-market purchases by the Fed make the money supply

Correct Answer
verified

As the price level falls,the value of money falls.

Correct Answer
verified

Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while hus money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Correct Answer
verified

Figure 17-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 17-2.If the relevant money-demand curve is the one labeled MD₁,then the equilibrium value of money is

Correct Answer
verified

Exam 30: Money Growth and Inflation

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

Figure 17-1 -Refer to Figure 17-1.When the money supply curve shifts from MS1 to MS2,

Correct AnswerverifiedShow Answer

Shoeleather costs arise when higher inflation rates induce people to

Correct AnswerverifiedShow Answer

Given a nominal interest rate of 8 percent,in which of the following cases would you earn the highest after-tax real rate of interest?

Correct AnswerverifiedShow Answer

Printing money to finance government expenditures

Correct AnswerverifiedShow Answer

Using separate graphs,demonstrate what happens to the money supply,money demand,the value of money,and the price level if: a.the Fed increases the money supply. b.people decide to demand less money at each value of money.

Correct Answerverified a.The Fed increases the money supply....View AnswerShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If the Fed conducts open market sales,the equilibrium value of money decreases and the equilibrium price level increases.

Correct AnswerverifiedShow Answer

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

Correct AnswerverifiedShow Answer

When the money market is drawn with the value of money on the vertical axis,if the money supply rises

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Studies have found which of the following economic terms mentioned most often in U.S.newspapers?

Correct AnswerverifiedShow Answer

Which of the following is accurate?

Correct AnswerverifiedShow Answer

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the assumptions of the quantity theory of money,if the money supply decreases by 7 percent,then

Correct AnswerverifiedShow Answer

Open-market purchases by the Fed make the money supply

Correct AnswerverifiedShow Answer

As the price level falls,the value of money falls.

Correct AnswerverifiedShow Answer

Walter puts money in a savings account at his bank earning 3.5 percent.One year later he takes his money out and notes that while hus money was earning interest,prices rose 1.5 percent.Walter earned a nominal interest rate of

Correct AnswerverifiedShow Answer

Figure 17-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 17-2.If the relevant money-demand curve is the one labeled MD1,then the equilibrium value of money is

Correct AnswerverifiedShow Answer

Correct Answer
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Figure 17-1 -Refer to Figure 17-1.When the money supply curve shifts from MS₁ to MS₂,

Correct Answer
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a.The Fed increases the money supply....
View Answer

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Figure 17-2.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes. -Refer to Figure 17-2.If the relevant money-demand curve is the one labeled MD₁,then the equilibrium value of money is

Correct Answer
verified