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2. Money, Interest, and Inflation 28 CLICKER QUESTIONS

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4. © 2013 Pearson CHECKPOINT 28.1 A.the nominal interest rate B.the real interest rate C.the inflation rate D.real GDP E.the price level Question 1 The demand for money is the relationship between the quantity of money demanded and _______.

5. © 2013 Pearson CHECKPOINT 28.1 A.people sell bonds, and the interest rate falls B.people buy bonds, and the interest rate falls C.the demand for money increases, and the interest rate rises D.the supply of money decreases, and the interest rate rises E.the demand for money decreases, and the interest rate falls Question 2 If the nominal interest rate is above its equilibrium level, then _______.

6. © 2013 Pearson CHECKPOINT 28.1 A.the nominal interest rate falls B.the nominal interest rate rises C.the demand for money increases D.people sell bonds and the nominal interest rate rises E.the demand for money decreases Question 3 When the Fed increases the quantity of money, ______.

7. © 2013 Pearson CHECKPOINT 28.2 A.to make the real interest rate equal to the nominal interest rate B.to make the inflation rate equal to zero C.to achieve money market equilibrium D.to make the inflation rate equal to the growth rate of real GDP. E.to keep the inflation rate moderate Question 4 In the long run, the price level adjusts ________.

8. © 2013 Pearson CHECKPOINT 28.2 A.how the Fed changes the quantity of money B.the relationship between the nominal and real interest rates C.the relationship between a change in the quantity of money and the price level D.the relationship between bonds and currency demanded E.the nominal interest rate and the quantity of money demanded Question 5 The quantity theory of money is a proposition about ___ in the long run.

9. © 2013 Pearson CHECKPOINT 28.2 A.6 percent a year B.5 percent a year C.1 percent a year D.  1 percent a year E.12 percent a year 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 ____________.

10. © 2013 Pearson CHECKPOINT 28.2 A.50 B.500 C.20 D.10 E.2,500 Question 7 Suppose that GDP is $5,000 million and the quantity of money is $500 million. Then the velocity of circulation equals _______.

11. © 2013 Pearson CHECKPOINT 28.3 A.2.6 percent a year B.4.0 percent a year C.5.6 percent a year D.7.0 percent a year E.1.4 percent a year 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 _______.

12. © 2013 Pearson CHECKPOINT 28.3 A.increases; increases B.increases; decreases C.decreases; increases D.increases; does not change E.does not change; increases Question 9 The cost of inflation ____ when inflation becomes more rapid and ____ when inflation becomes more unpredictable.

13. © 2013 Pearson CHECKPOINT 28.3 A.0.06 to 0.09 B.1 to 3 C.2.3 D.3.2 E.0 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.