Money, Interest, and Inflation

2. 12 Money, Interest, and Inflation CLICKER QUESTIONS

3. Checkpoint 12.3 Checkpoint 12.1 Checkpoint 12.2 Question 8 Question 1 Question 4 Question 9 Question 2 Question 5 Question 6 Question 10 Question 3 Question 7

4. CHECKPOINT 12.1 Question 1 The demand for money is the relationship between the quantity of money demanded and _______. • the nominal interest rate • the real interest rate • the inflation rate • real GDP • the price level

5. CHECKPOINT 12.1 Question 2 If the nominal interest rate is above its equilibrium level, then _______. • people sell bonds and the interest rate falls • people buy bonds and the interest rate falls • the demand for money increases and the interest rate rises • the supply of money decreases and the interest rate rises • the demand for money decreases and the interest rate falls

6. CHECKPOINT 12.1 Question 3 When the Fed increases the quantity of money, the ______. • nominal interest rate falls • nominal interest rate rises • demand for money increases • people sell bonds and the nominal interest rate rises • demand for money decreases

7. CHECKPOINT 12.2 Question 4 In the long run, the price level adjusts ________. • to make the real interest rate equal to the nominal interest rate • to make the inflation rate equal to zero • to achieve money market equilibrium • to make the inflation rate equal to the growth rate of real GDP. • to keep the inflation rate moderate

8. CHECKPOINT 12.2 Question 5 The quantity theory of money is a proposition about ___ in the long run. • how the Fed changes the quantity of money • the relationship between the nominal and real interest rates • the relationship between a change in the quantity of money and the price level • the relationship between bonds and currency demanded • the nominal interest rate and the quantity of money demanded

9. CHECKPOINT 12.2 Question 6 In the long run, if the quantity of money grows at 3 percent a year, velocity does not grow, and real GDP grows at 2 percent a year, then the inflation rate equals ____________. • 6 percent a year • 5 percent a year • 1 percent a year • 1 percent a year • 12 percent a year

10. CHECKPOINT 12.2 Question 7 Suppose that GDP is $5,000 million and the quantity of money is $500 million. Then the velocity of circulation equals _______. • 50 • 500 • 20 • 10 • 2,500

11. CHECKPOINT 12.3 Question 8 Suppose that a country has a real interest rate of 4 percent a year and an inflation rate of 3 percent a year. If the income tax rate is 20 percent, then the after-tax real interest rate is _______. • 2.6 percent a year • 4.0 percent a year • 5.6 percent a year • 7.0 percent a year • 1.4 percent a year

12. CHECKPOINT 12.3 Question 9 The cost of inflation ____ when inflation becomes more rapid and ____ when inflation becomes more unpredictable. • increases; increases • increases; decreases • decreases; increases • increases; does not change • does not change; increases

13. CHECKPOINT 12.3 Question 10 Economists have estimated that if the inflation rate is lowered from 3 percent a year to 0 percent a year, the growth rate of real GDP will rise by ____ percentage points a year. • 0.06 to 0.09 • 1 to 3 • 2.3 • 3.2 • 0