Ch 5.2 Flashcards
If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate must:
increase by 1 percent.
Between 1880 and 1896, the price level in the United States fell 23 percent. This movement was ______ for bankers of the Northeast and ______ for farmers of the South and West.
good; bad
According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises.
less; smaller
The classical dichotomy:
holds when one can determine the values of real variables without knowing the values of nominal variables or the size of the money supply.
The inconvenience associated with reducing money holdings to avoid the inflation tax is called:
shoeleather costs.
If inflation is 6 percent and a worker receives a 4 percent nominal wage increase, then the worker’s real wage:
Decreased by 2 percent
Survey evidence indicates that economists worry ______ the general public does about prices increasing more rapidly than their incomes.
Less than
When a person purchases a 90-day Treasury bill, he or she cannot know the:
Ex Post real interest rate
Percentage change in P is approximately equal to the percentage change in:
M minus percentage change in Y plus percentage change in velocity.
If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:
inflation of 1 percent and the nominal interest rate of 1 percent.
The ex post real interest rate will be greater than the ex ante real interest rate when the:
actual rate of inflation is less than the expected rate of inflation.
It would be most precise to say that the Fisher effect predicts that the nominal interest rate will move one-for-one with the:
expected inflation rate.
If nominal wages cannot be cut, then the only way to reduce real wages is by:
inflation.
The opportunity cost of holding money is the:
nominal interest rate.
If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP willl be approximately ______ percent.
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