ECON 2H03 Lecture Notes - Lecture 7: Nominal Interest Rate, Real Interest Rate, Fisher Equation

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19 Apr 2016

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According to the fisher equation a 5 percent increase in the rate of inflation increases the nominal interest rate by _____. The concept of monetary neutrality in the classical model means that an increase in the money supply will increase: real gdp. real interest rates. nominal interest rates. both saving and investment by the same amount. Consider the money demand function that takes the form (m/p)d = ky, where m is the quantity of money, p is the price level, and y is real output. The percentage change in p is approximately equal to the percentage change in: M minus percentage change in y plus percentage change in velocity. M minus percentage change in y minus percentage change in velocity. To end a hyperinflation, a government trying to reduce its reliance on seigniorage would: print more money. raise taxes and cut spending. lower taxes and increase spending. lower interest rates.

Related Questions

Suppose velocity and output are constant, both the quantity theory and Fisher effect hold. If the nominal interest rate is 6% and inflation is 2.5%, then

a. the real interest rate is 8.5%

b. the real interest rate is 2.5%

c. the money supply growth rate is 6%

d. the money supply growth rate is 2.5%

indigoalligator323

-Hyperinflations occur when the government runs a large budget ________, which the central bank
finances with a substantial monetary ________.
a. deficit, contraction
b. deficit, expansion
c. surplus, contraction
d. surplus, expansion

-According to the quantity theory of money and the Fisher effect, if the central bank increases the
rate of money growth,
a. inflation and the nominal interest rate both increase.
b. inflation and the real interest rate both increase.
c. the nominal interest rate and the real interest rate both increase.
d. inflation, the real interest rate, and the nominal interest rate all increase.

- If an economy always has inflation of 10 percent per year, which of the following costs of inflation
will it NOT suffer?
a. Shoe leather costs from reduced holdings of money.
b. Menu costs from more frequent price adjustment.
c. Distortions from the taxation of nominal capital gains.
d. Arbitrary redistributions between debtors and creditors.

Why does the monetary policy curve slope upward? (check all that apply.)

a. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.

b. When inflation increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.

c. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.

d. When inflation increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.

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ECON 2H03 Lecture Notes - Lecture 7: Nominal Interest Rate, Real Interest Rate, Fisher Equation

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