Question 1

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Accepted Answer

The answer of According to the Fisher effect, if the...

Question 2

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.

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The answer of Your grandfather tells you that his annual...

Question 3

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Accepted Answer

The answer of Does an increase in the inflation rate...

Question 4

Fifteen years ago your parents purchased some land with the idea of selling it later to help pay your college expenses. They purchased the land for $100,000. They sold it for $180,000. During the time they held it the price level rose from 80 to 120. If your parents face a 25% tax rate, what was their real after­tax gain? Hint: What's the real value of the land in current prices?)

Accepted Answer

The answer of Fifteen years ago your parents purchased some...

Question 5

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _____ frequent trips to the bank and U.S. firms changed prices _____ frequently.

Accepted Answer

The answer of In the early 1920s U.S. consumer prices...

Question 6

The idea that firms incur actual costs when they change prices is known as _____. Firms in countries with lower inflation rates will change price _____ frequently compared to those countries where inflation is higher.

Accepted Answer

The answer of The idea that firms incur actual costs...

Question 7

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

Accepted Answer

The answer of Some countries have experienced an extraordinarily high...

Question 8

One benefit of low inflation is that it _____ the variability of relative price changes. Therefore, resources are _____ likely to be better allocated.

Accepted Answer

The answer of One benefit of low inflation is that...

Question 9

The _____ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _____ interest rate and the _____.

Accepted Answer

The answer of The _____ interest rate tells you how...

Question 10

The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?

Accepted Answer

The answer of The nominal interest rate is eight percent...

Question 11

The inflation tax alters people's behavior and creates a deadweight loss. Explain.

Accepted Answer

The answer of The inflation tax alters people's behavior and...

Question 12

The costs a business incurs to change its prices are called .

Accepted Answer

The answer of The costs a business incurs to change...

Question 13

During hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as .

Accepted Answer

The answer of During hyperinflations, people desire to hold less...

Question 14

Suppose the rate of inflation rate is two percent and the nominal interest rate is five percent. According to the Fisher Effect, an increase in the inflation rate to six percent should cause the nominal interest rate to increase from five percent to in the long run.

Accepted Answer

The answer of Suppose the rate of inflation rate is...

Question 15

What are menu costs and why does high inflation increase menu costs?

Accepted Answer

The answer of What are menu costs and why does...

Question 16

Jackie saves $100 and receives $106 the next year. During the same year, the price of the basket of goods that she purchases increases from $100 to $104. What is nominal interest rate on Jackie's saving? What is the real interest rate on Jackie's saving? What was the inflation rate?

Accepted Answer

The answer of Jackie saves $100 and receives $106 the...

Question 17

In the U.S., taxes are paid on one's _____ gains/returns. Therefore, a _____ inflation rate encourages more saving.

Accepted Answer

The answer of In the U.S., taxes are paid on...

Question 18

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

Accepted Answer

The answer of Given that firms change their prices infrequently,...

Question 19

In the long run inflation is explained by __________. For countries that had hyperinflation this source of inflation arose primarily because the government __________.

Accepted Answer

The answer of In the long run inflation is explained...

Question 20

If the government were to run a budget deficit and wanted to finance it by printing money, would it have the central bank conduct open market purchases or open market sales?

Accepted Answer

The answer of If the government were to run a...

Quiz 22: Money Growth and Inflation

According to the Fisher effect, if the central bank raises the rate of money supply growth, what happens to the nominal and the real interest rate?

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

In the early 1920s U.S. consumer prices fell, while Germany experienced hyperinflation. According to the ideas of shoeleather costs and menu costs, U.S. households relative to German households) made _ frequent trips to the bank and U.S. firms changed prices _ frequently.

The idea that firms incur actual costs when they change prices is known as _. Firms in countries with lower inflation rates will change price _ frequently compared to those countries where inflation is higher.

Some countries have experienced an extraordinarily high rate of inflation known as . This is usually due to governments using money creation as a way to pay for their spending. The revenue the government raises by creating money is called the .

One benefit of low inflation is that it _ the variability of relative price changes. Therefore, resources are _ likely to be better allocated.

The ___ interest rate tells you how fast the number of dollars in your bank account will rise over time, and it is the sum of the _ interest rate and the ___.