Question 1

According to monetary neutrality and the Fisher effect,an increase in the money supply growth rate eventually increases
A)inflation and nominal interest rates,but does not change real interest rates.
B)inflation,nominal interest rates,and real interest rates.
C)inflation and real interest rates,but does not change nominal interest rates.
D)nominal interest rates and real interest rates,but does not change inflation.

Accepted Answer

Monetary neutrality suggests that in the long-run, changes in the money supply growth rate have no effect on real variables such as output and employment. According to the Fisher effect, an increase in the money supply growth rate leads to an increase in inflation and nominal interest rates but does not affect real interest rates. Therefore, the correct choice is A, as it correctly states that an increase in the money supply growth rate eventually increases inflation and nominal interest rates but does not change real interest rates.

Question 2

Which of the following would decrease the value of money?
A)Money demand exceeds money supply
B)​The Federal Reserve sells government bonds
C)The velocity of money decreases
D)​The price level decreases

Accepted Answer

The answer of Which of the following would decrease the...

Question 3

Ashley puts money in a savings account at her bank earning 2 percent interest.One year later she takes her money out and notes that prices rose 3 percent.Ashley earned a
A)​real interest rate of -1 percent due to inflation.
B)​real interest rate of 1 percent due to inflation.
C)​nominal interest rate of -1 percent due to inflation.
D)​nominal interest rate of 1 percent due to inflation.

Accepted Answer

The nominal interest rate is 2 percent, but Ashley's savings lost value due to inflation of 3 percent. Therefore, her real interest rate is -1 percent, which means she actually lost purchasing power over the course of the year.

Question 4

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases
A)the inflation rate and the nominal interest rate by the same number of percentage points.
B)nominal interest rates but by less than the percentage point increase in the inflation rate.
C)the inflation rate but not the nominal interest.
D)neither the inflation rate nor the nominal interest rate.

Accepted Answer

According to monetary neutrality, the long-run effect of a change in the money supply growth rate is only on the price level, and not on real variables such as real interest rates. The Fisher effect states that in the long run, the nominal interest rate adjusts one-for-one with changes in the expected inflation rate. Therefore, if both propositions hold, an increase in the money supply growth rate would lead to an increase in both the inflation rate and the nominal interest rate by the same number of percentage points.

Question 5

The Fisher effect
A)says the government can generate revenue by printing money.
B)says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C)explains how higher money supply growth leads to higher inflation.
D)explains how prices adjust to obtain equilibrium in the money market.

Accepted Answer

The Fisher effect refers to the idea that there is a one-to-one adjustment of the nominal interest rate to the inflation rate. In other words, if inflation goes up by 1%, the nominal interest rate should also go up by 1% to maintain the same real interest rate. This effect was named after economist Irving Fisher, who first proposed it in the early 20th century. The Fisher effect is important for understanding the relationship between inflation and interest rates, and for predicting how changes in one variable might affect the other.

Quiz 17: Money Growth and Inflation: The Classical Theory of Inflation

According to monetary neutrality and the Fisher effect,an increase in the money supply growth rate eventually increases

Which of the following would decrease the value of money?

Ashley puts money in a savings account at her bank earning 2 percent interest.One year later she takes her money out and notes that prices rose 3 percent.Ashley earned a

Suppose that monetary neutrality and the Fisher effect both hold.An increase in the money supply growth rate increases

The Fisher effect