ECO 10

QN=226 (17949) Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

• a. (i) Inflation is 2.5 percent; the tax rate is 25 percent

• b. (ii) Inflation is 3 percent; the tax rate is 20 percent.

• c. (iii) Inflation is 2 percent; the tax rate is 30 percent.

• d. The after-tax real interest rate is the same for all of (i), (ii) and (iii).

QN=227 (17935) The shoeleather cost of inflation refers to

• a. the redistributional effects of unexpected inflation.

• b. the time spent searching for low prices when inflation rises.

• c. the waste of resources used to maintain lower money holdings.

• d. the increased cost to the government of printing more money.

QN=228 (17953) High and unexpected inflation has a greater cost

• a. for those who save than for those who borrow.

• b. for those who hold a little money than for those who hold a lot of money.

• c. for those whose wages increase by as much as inflation, than those who are paid a fixed nominal wage.

• d. for savers in low income tax brackets than for savers in high income tax brackets.

QN=229 (17937) If P denotes the price of goods and services measured in terms of money, then..

• a. (i) 1/P represents the value of money measured in terms of goods and services

• b. (ii) P can be interpreted as the inflation rate

• c. (iii) the supply of money influences the value of P, but the demand for money does not.

• d. All of (i), (ii), and (iii) are correct.

QN=230 (17942) You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?

• a. 28.00 percent

• b. 36.25 percent

• c. 43.75 percent

• d. 67.50 percent

QN=231 (17946) Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

• a. (i) an increase in the value of money

• b. (ii) a decrease in the price level

• c. (iii) an open-market purchase of bonds by the Federal Reserve

• d. None of (i), (ii), and (iii) is correct.

QN=232 (17931) Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS2; also suppose the economy's real GDP is 45,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately

• a. 4.5

• b. 6.0

• c. 9.0

• d. 12.0

QN=233 (17951) According to the classical dichotomy, which of the following is affected by monetary factors?

• a. (i) nominal wages

• b. (ii) the price level

• c. (iii) nominal GDP

• d. All of (i), (ii), and (iii) are correct.

QN=234 (17938) If M = 3,000, P = 2, and Y = 12,000, what is velocity?

• a. 1/2

• b. 2

• c. 4

• d. 8

QN=235 (17941) According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

• a. inflation, nominal interest rates, and real interest rates.

• b. inflation and nominal interest rates, but does not change real interest rates.

• c. inflation and real interest rates, but does not change nominal interest rates.

• d. neither inflation, nominal interest rates, nor real interest rates.