Questions from General Economics

Q: Recall that money serves three functions in the economy. What are

Recall that money serves three functions in the economy. What are those functions? How does inflation affect the ability of money to serve each of these functions?

Q: Suppose that people expect inflation to equal 3 percent, but in

Suppose that people expect inflation to equal 3 percent, but in fact, prices rise by 5 percent. Describe how this unexpectedly high inflation rate would help or hurt the following: a. the government b...

Q: Explain whether the following statements are true, false, or uncertain

Explain whether the following statements are true, false, or uncertain. a. “Inflation hurts borrowers and helps lenders, because borrowers must pay a higher rate of interest.” b. “If prices change in...

Q: Suppose that this year’s money supply is $500 billion, nominal

Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. a. What is the price level? What is the velocity of money? b. Suppose that velocity is...

Q: Suppose that changes in bank regulations expand the availability of credit cards

Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash. a. How does this event affect the demand for money? b. If the Fed does not respo...

Q: Suppose that a country’s inflation rate increases sharply. What happens to

Suppose that a country’s inflation rate increases sharply. What happens to the inflation tax on the holders of money? Why is wealth that is held in savings accounts not subject to a change in the infl...

Q: A current debate in education is whether teachers should be paid on

A current debate in education is whether teachers should be paid on a standard pay scale based solely upon their years of training and teaching experience, or whether part of their salary should be ba...

Q: Explain the difference between nominal and real variables and give two examples

Explain the difference between nominal and real variables and give two examples of each. According to the principle of monetary neutrality, which variables are affected by changes in the quantity of m...

Q: What are the costs of inflation? Which of these costs do

What are the costs of inflation? Which of these costs do you think are most important for the U.S. economy?

Q: The government of a country increases the growth rate of the money

The government of a country increases the growth rate of the money supply from 5 percent per year to 50 percent per year. What happens to prices? What happens to nominal interest rates? Why might the...