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# Homework%202 - unexpectedly decreases sharply This...

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Econ 1015 – Lecture 2 Homework 2 Student Name ________________ Student Number ________________ 1. Consider the graphic representation of the determination of the value of money and the price level described in figure 1 in your textbook. Suppose the demand for money shifts to the right and that the Fed keeps the money supply fixed. In the long run we should expect the value of money to _____ and the price level to _____. (1) remain unchanged; increase (2) decrease; increase (3) increase; remain unchanged (4) decrease; decrease (5) increase; decrease 2. Suppose that this year’s money supply is \$1,200 billion, nominal GDP is 24,000 billion and real GDP is 10,000 trillion. According to the quantity equation, the price level is _____, while the velocity of money is _____. (1) 2.4; 5 (2) 4.8; 20 (3) 20; 10 (4) 20; 4.8 (5) 2.4; 20 3. Suppose that you are a homeowner with a fixed rate mortgage and that inflation
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Unformatted text preview: unexpectedly decreases sharply. This situation will _____ you, since the real interest rate that you pay will be unexpectedly ______. (1) benefit; remain the same (2) harm; lower (3) benefit; higher (4) harm; higher. (5) not affect; higher. 4. Suppose that as a result of hyperinflation in Zaire individuals have to leave their positions at work more frequently to make trips to the bank. According to the textbook, this situation is best described as the ______ cost of inflation (1) shoeleather (2) menu (3) relative price variability (4) inflation induced tax (5) purchasing power 5. If the tax rate is 30 percent, the nominal interest rate is 9 percent and the inflation rate is 5 percent, the before tax real interest rate is _____ percent and the after tax real interest rate is (1) 4; 4 (2) 14; 1.3 (3) 4; 1.3 (4) – 4; 0 (5) 14; 4...
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