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You put money in an account and earn a real interest rate of 10 percent.Inflation is 2 percent,and your marginal tax rate is 20 percent.What is your after-tax real interest rate?


A) 1.6 percent
B) 2.6 percent
C) 5.6 percent
D) 7.6 percent

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Velocity in the country of Nemedia is always stable.In 2014,the money supply was $100 billion and real GDP was $300 billion.In 2015,the money supply increased by 10 percent,real GDP increased by 5 percent,and nominal GDP equalled $660 billion.By how much did the price level increase between 2014 and 2015?


A) 2.38 percent
B) 4.76 percent
C) 9.50 percent
D) 10.0 percent

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What does the evidence from hyperinflations indicate with respect to the quantity theory of money?


A) Evidence shows that money growth and inflation moved together,which supports the quantity theory.
B) Evidence shows that money growth and inflation moved together,which does not support the quantity theory.
C) Evidence shows that money growth and inflation did not move closely with each other,which supports the quantity theory.
D) Evidence shows that money growth and inflation did not move closely with each other,which does not support the quantity theory.

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What does the evidence gained from studying hyperinflation indicate?


A) The rate of inflation is not closely related to the rate at which the money supply changes.
B) Nominal interest rates are independent of the money supply.
C) Inflation rates parallel money supply growth rates.
D) Inflation rates move in the opposite direction as the growth rate in money supply.

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When the money market is depicted in a diagram with the value of money on the vertical axis,which statement best describes the money demand function?


A) It slopes upward because at higher prices people want to hold more money.
B) It slopes downward because at higher prices people want to hold more money.
C) It slopes downward because at higher price people want to hold less money.
D) It slopes upward because at higher prices people want to hold less money.

Correct Answer

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What is an effect of expected inflation?


A) It increases wages.
B) It increases the incentive to save.
C) It benefits lenders and borrowers.
D) It changes real interest rates.

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In the 14th century,the Western African Emperor Kankan Musa travelled to Cairo where he gave away much gold,which was in use as a medium of exchange.How would we predict this increase in gold would do to the price level and value of gold in Cairo?


A) raise both the price level and the value of gold in Cairo
B) raise the price level,but decrease the value of gold in Cairo
C) lower the price level,but increase the value of gold in Cairo
D) lower both the price level and the value of gold in Cairo

Correct Answer

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


A) It accounts for 10 percent of government revenue.
B) It accounts for less than 1 percent of government revenue.
C) Printing money imposes a tax on net borrowers.
D) Printing money causes the nominal interest rate to decrease.

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The quantity theory implies that if output and velocity are constant,then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

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What are the costs of inflation?

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The costs of inflation include "shoe lea...

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Given a nominal interest rate of 7 percent,in which of the following cases would you earn the lowest after-tax real interest rate?


A) Inflation is 1 percent,and the tax rate is 10 percent.
B) Inflation is 2 percent,and the tax rate is 15 percent.
C) Inflation is 3 percent,and the tax rate is 20 percent.
D) Inflation is 4 percent,and the tax rate is 25 percent.

Correct Answer

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Consider the quantity equation MV = PY.Assume that the money market is in equilibrium,where the money supply equals the demand for money,MS = MD = M.Assume also that the velocity of money is constant.In a graph with P on the vertical axis and Y on the horizontal axis,draw the relationship Y(P)implied by the quantity theory.How could this curve be interpreted? How does it change when MS increases?

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We can re-write the quantity equation Y ...

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What is the name of the one-for-one adjustment of the nominal interest rate to the inflation rate?


A) the Keynes effect
B) the Hume effect
C) the Fisher effect
D) the Ricardian equivalence effect

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A rising price level eliminates an excess supply of money.

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Assuming that velocity is stable,if real GDP grows by 20 percent this year,and if the money supply does not change this year,how much does the price level change by?


A) -20 percent
B) -10 percent
C) 10 percent
D) 20 percent

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For a given real interest rate,which statement best describes the effects of an increase in inflation?


A) Inflation makes the real interest rate decrease,which encourages savings.
B) Inflation makes the real interest rate decrease,which discourages savings.
C) Inflation makes the real interest rate increase,which encourages savings.
D) Inflation makes the real interest rate increase,which discourages savings.

Correct Answer

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According to the quantity equation,if V and M are constant and Y doubles,what will happen to the price level?


A) It will fall to half its original level.
B) It will not change.
C) It will double.
D) It will more than double.

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Assume you buy stock and its price rises just as much as the price level.Before taxes,what have you made?


A) a nominal and real gain,but you pay taxes only on the nominal gain
B) a nominal and real gain,but you pay taxes only on the real gain
C) a nominal gain,but no real gain,yet you pay taxes on the nominal gain
D) a nominal gain,but no real gain,so you pay no taxes on the nominal gain

Correct Answer

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What does the principle of monetary neutrality imply?


A) An increase in the money supply will increase real GDP and the price level.
B) An increase in the money supply will increase real GDP,but not the price level.
C) An increase in the money supply will increase the price level,but not real GDP.
D) An increase in the money supply will increase neither the price level nor real GDP.

Correct Answer

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What is the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone called?


A) a classical variable
B) a dichotomous variable
C) a nominal variable
D) a real variable

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