front 1 When inflation rises people will | back 1 Demand less money, so the price level rises. |
front 2 Suppose an economy produces only ice cream cones. If the price level rises, the value of currency | back 2 falls, because one unit of currency buys fewer ice cream cones. |
front 3 If P denotes the price of goods and services measured in terms of money, then | back 3 1/P represents the value of money measured in terms of goods and services. |
front 4 when the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money | back 4 increases, so the quantity of money demanded decreases. |
front 5 if the money supply is MS2, and the value of money is 2, then there is an excess | back 5 supply of money that is represented by the distance between the points A and B. |
front 6 when the money supply curve shifts from MS1 to MS2, | back 6 the equilibrium value of money decreases. |
front 7 if the relevant money supply curve is the one labeled MS1, then the equilibrium price level is | back 7 2, and the equilibrium value is 0.5 |
front 8 if the relevant money supply curve is the one labeled MS2, then | back 8 when the money market is in equilibrium, one dollar purchases about one-third of a basket of goods and services. |
front 9 If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is | back 9 0.5, and the equilibrium price level is 2 |
front 10 The price of a Honda Accord | back 10 Is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable. |
front 11 the payments you make on your automobile loan are given in terms of dollars. As prices rise you may notice you give up fewer goods to make your payments | back 11 The dollar amount you pay is the nominal value. The number of goods you give up is the real value. |
front 12 An assistant manager at a restaurant gets a $100 a month raise. He figures with his new monthly salary he cannot buy as many goods and services as he could last year. | back 12 His real salary has fallen, and his nominal salary has risen. |
front 13 Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes | back 13 your nominal wage will increase. if your nominal wage rose by a greater percent than the price level, then your real wage also increased. |
front 14 The classical dichotomy refers to the idea that the supply of money | back 14 Determines nominal variables, but not real variables. |
front 15 According to the classical dichotomy, when the money supply doubles, what also doubles? | back 15 The price level and nominal wages. |
front 16 Monetary neutrality implies that an increase in the quantity of money will | back 16 increase the price level. |
front 17 Most economists believe that the principle of monetary neutrality is | back 17 Mostly relevant to the long run. |
front 18 The classical dichotomy separates what two things? | back 18 Real and nominal variables. |
front 19 When studying long run changes in the economy, what usually offers a good description of how the world works? | back 19 The neutrality of money. |
front 20 If M=2000, P=2.25, and Y=6,000, what is velocity? | back 20 6.75 |
front 21 If real output in an economy is 1000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation what is the average price level? | back 21 1.20 |
front 22 According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then | back 22 Nominal GDP would rise by 5 percent; real GDP would be unchanged. |
front 23 The money supply is 4000, nominal GDP is 8000, and real GDP is 2000. Which of the following is 2? | back 23 velocity but not the price level. |
front 24 Other things the same, an increase in velocity means what? | back 24 transactions per dollar increase so the price level rises. |
front 25 Suppose the money supply tripled, but at the same time velocity doubled and real GDP was unchanged. According to the quantity equation the price level | back 25 is 6 times its old value. |
front 26 Suppose over some period of time the money supply tripled, velocity was unchanged, and and real GDP doubled. according the quantity equation the price level | back 26 is 1.5 times its old value. |
front 27 the source of hyperinflations is primarily | back 27 increases in money supply growth. |
front 28 The inflation tax refers to | back 28 the revenue a government creates by printing money. |
front 29 The inflation tax falls mostly heavily | back 29 On those who hold a lot of currency, but accounts for a small share of government revenue. |
front 30 Printing money to finance government expenditures | back 30 Imposes a tax on everyone who holds money. |
front 31 The continental congress used what to help finance the American Revolution? | back 31 Inflation tax |
front 32 The claim that increases in the growth rate of money supply increase nominal interest rates but not real interest rates is known as | back 32 Fisher Effect |
front 33 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 his money was earning interest, the prices rose 1.5 percent. Walter earned a nominal interest rate of | back 33 3.5 percent, and a real interest rate of 2 percent. |
front 34 If a company experienced deflation, then | back 34 the real interest rate would be greater than the nominal interest rate. |
front 35 The cost of changing price tags and price listings are known as | back 35 menu costs. |
front 36 When inflation falls, people | back 36 make less frequent trips to the bank and firms make less frequent price changes. |
front 37 Higher inflation makes relevant prices | back 37 more variable, making it less likely that resources will be allocated to their best use. |
front 38 You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced | back 38 a nominal gain, but no real gain, and you paid taxes on the nominal gain. |
front 39 The nominal interest rate is 4%, the inflation rate is 1% and the tax is 20%. Given US tax laws, how is after tax real return calculated? | back 39 .04(1-.20)-.01 |
front 40 You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2%, and your marginal tax rate is 20%. What is your after tax real rate of interest? | back 40 2% |
front 41 Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same? | back 41 menu costs, inflation tax, and shoeleather costs. |
front 42 In the 1970s, in response to recessions caused by increase in the price of oil, the central banks in many countries increased their money supplies. The central banks may have done this by | back 42 purchasing bonds on the open market, which would have lowered the value of money |
front 43 Open markets purchased by the Fed make the money supply | back 43 increase, which makes the value of money decrease. |
front 44 Economic variables whose values are measured in monetary units are called | back 44 Nominal variables |
front 45 When shopping you notice that a pair of jeans cost $20, and a t shirt costs $10. You compute the price of jeans relative to the t shirt. | back 45 The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable. |
front 46 Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected. The real interest rate she earns is | back 46 Lower than she had expected, and the real value of the loan is lower than she expected. |
front 47 In the last part of the 1800s | back 47 deflation made it harder for farmers to pay off their debts. |