Question 1

Attempts by policymakers to keep the rate of unemployment below the natural rate of unemployment for a sustained period of time will result in

Accepted Answer

A) demand-pull inflation. 
B) permanently higher levels of output. 
C) a recession. 
D) a shift of the LRAS curve to the left. 
A) demand-pull inflation. 
B) permanently higher levels of output. 
C) a recession. 
D) a shift of the LRAS curve to the left. A

Question 2

The expectations-augmented Phillips curve suggests a trade-off between unemployment and

Accepted Answer

A) unexpected inflation. 
B) expected inflation. 
C) either expected or unexpected inflation. 
D) neither expected nor unexpected inflation. 
A) unexpected inflation. 
B) expected inflation. 
C) either expected or unexpected inflation. 
D) neither expected nor unexpected inflation. A

Question 3

The typical firm will find that its payoff to reducing price increases after the announcement of a disinflation policy

Accepted Answer

A) increases if it believes that the policy will actually be carried out. 
B) decreases if it believes that the policy will actually be carried out. 
C) is independent of whether the policy is actually carried out. 
D) depends on movements in the LRAS curve. 
A) increases if it believes that the policy will actually be carried out. 
B) decreases if it believes that the policy will actually be carried out. 
C) is independent of whether the policy is actually carried out. 
D) depends on movements in the LRAS curve. A

Question 4

Nobel laureate Milton Friedman is known for his assertion that,

Accepted Answer

A) "Inflation is caused solely by government budget deficits." 
B) "Inflation is always and everywhere a monetary phenomenon." 
C) "The evils of inflation are greatly overrated." 
D) "Inflation is the opium of the masses." 
A) "Inflation is caused solely by government budget deficits." 
B) "Inflation is always and everywhere a monetary phenomenon." 
C) "The evils of inflation are greatly overrated." 
D) "Inflation is the opium of the masses."

Question 5

Inflation occurs whenever

Accepted Answer

A) there is a one-time increase in the money supply. 
B) there is a one-time increase in government spending. 
C) the growth rate of nominal aggregate demand exceeds the growth rate of aggregate supply over sustained periods of time. 
D) the growth rate of nominal aggregate supply exceeds the growth rate of aggregate demand over sustained periods of time. 
A) there is a one-time increase in the money supply. 
B) there is a one-time increase in government spending. 
C) the growth rate of nominal aggregate demand exceeds the growth rate of aggregate supply over sustained periods of time. 
D) the growth rate of nominal aggregate supply exceeds the growth rate of aggregate demand over sustained periods of time.

Question 6

If the money supply is unchanged, expansionary fiscal policy

Accepted Answer

A) cannot result in an increase in the price level. 
B) cannot result in an increase in output. 
C) cannot result in prolonged inflation. 
D) results in prolonged inflation provided it was unexpected. 
A) cannot result in an increase in the price level. 
B) cannot result in an increase in output. 
C) cannot result in prolonged inflation. 
D) results in prolonged inflation provided it was unexpected.

Question 7

Disinflation is

Accepted Answer

A) a decline in the price level. 
B) an inflation rate lower than the natural rate of inflation. 
C) a decline in the long-run rate of inflation. 
D) an inflation rate higher than the natural rate of inflation. 
A) a decline in the price level. 
B) an inflation rate lower than the natural rate of inflation. 
C) a decline in the long-run rate of inflation. 
D) an inflation rate higher than the natural rate of inflation.

Question 8

The long-run Phillips curve illustrates

Accepted Answer

A) a trade-off between unemployment and unexpected inflation. 
B) a trade-off between unemployment and expected inflation. 
C) a trade-off between expected inflation and unexpected inflation. 
D) no trade-off between unemployment and inflation. 
A) a trade-off between unemployment and unexpected inflation. 
B) a trade-off between unemployment and expected inflation. 
C) a trade-off between expected inflation and unexpected inflation. 
D) no trade-off between unemployment and inflation.

Question 9

Which of the following statements is correct according to both new classical and new Keynesian economists?

Accepted Answer

A) An unexpected increase in the money supply will increase only prices in the short run, whereas an unexpected increase in government spending will increase both prices and output. 
B) An unexpected increase in government spending will increase both prices and output in the short run. 
C) An unexpected increase in government spending will increase only output in the short run. 
D) Unexpected increases in the money supply or in government spending will increase only prices in the short run. 
A) An unexpected increase in the money supply will increase only prices in the short run, whereas an unexpected increase in government spending will increase both prices and output. 
B) An unexpected increase in government spending will increase both prices and output in the short run. 
C) An unexpected increase in government spending will increase only output in the short run. 
D) Unexpected increases in the money supply or in government spending will increase only prices in the short run.

Question 10

If during a particular year, the money supply grows 7%, output grows 2%, and velocity falls 2%, the inflation rate will be

Accepted Answer

A) 3%. 
B) 7%. 
C) 9%. 
D) 11%. 
A) 3%. 
B) 7%. 
C) 9%. 
D) 11%.

Question 11

A rule specifying a constant rate of growth of M1 during the early 1980s

Accepted Answer

A) was adopted in the United States, but not in Japan. 
B) would have resulted in greater inflation than actually occurred. 
C) would have resulted in a more contractionary policy than the one the Fed actually pursued. 
D) was dropped following an acceleration in the inflation rate. 
A) was adopted in the United States, but not in Japan. 
B) would have resulted in greater inflation than actually occurred. 
C) would have resulted in a more contractionary policy than the one the Fed actually pursued. 
D) was dropped following an acceleration in the inflation rate.

Question 12

Expansionary fiscal policy will produce inflation only if

Accepted Answer

A) it takes the form of a cut in personal income taxes. 
B) it takes the form of a cut in corporate profit taxes. 
C) it takes the form of an increase in government spending. 
D) it is accompanied by a sustained increase in the money supply. 
A) it takes the form of a cut in personal income taxes. 
B) it takes the form of a cut in corporate profit taxes. 
C) it takes the form of an increase in government spending. 
D) it is accompanied by a sustained increase in the money supply.

Question 13

A one-time increase in oil prices will cause a short-run

Accepted Answer

A) increase in the price level and in the level of current output. 
B) increase in the price level and a short-run decrease in the level of current output. 
C) decrease in the price level and in the level of current output. 
D) decrease in the price level and a short-run increase in the level of current output. 
A) increase in the price level and in the level of current output. 
B) increase in the price level and a short-run decrease in the level of current output. 
C) decrease in the price level and in the level of current output. 
D) decrease in the price level and a short-run increase in the level of current output.

Question 14

Unless ratified by policymakers, cost-push inflation will result in

Accepted Answer

A) persistent long-run inflation. 
B) hyperinflation. 
C) output beyond the full-employment level. 
D) a recession. 
A) persistent long-run inflation. 
B) hyperinflation. 
C) output beyond the full-employment level. 
D) a recession.

Question 15

If during a particular year, the money supply grows 6%, output grows 4%, and velocity grows 2%, the inflation rate will be

Accepted Answer

A) 0%. 
B) 4%. 
C) 8%. 
D) 12%. 
A) 0%. 
B) 4%. 
C) 8%. 
D) 12%.

Question 16

Deflation occurs when

Accepted Answer

A) inflation is falling. 
B) inflation does not rise as quickly. 
C) the price level is falling. 
D) inflation domestically is lower than that found in other countries. 
A) inflation is falling. 
B) inflation does not rise as quickly. 
C) the price level is falling. 
D) inflation domestically is lower than that found in other countries.

Question 17

If Paul Volcker was a "tough" central banker, why was he unable to reduce inflation without the economy experiencing significant losses in output and employment?

Accepted Answer

Volcker's predecessors had not

Question 18

Bracket creep

Accepted Answer

A) results in a tax on money balances. 
B) would be zero if the same tax rate were applied to all income. 
C) is greater in 2001 than it was in 1971. 
D) invariably leads to an excess burden. 
A) results in a tax on money balances. 
B) would be zero if the same tax rate were applied to all income. 
C) is greater in 2001 than it was in 1971. 
D) invariably leads to an excess burden.

Question 19

Economists who back the use of rules by the Fed believe that they would result in

Accepted Answer

A) a lower government budget deficit. 
B) increased credibility for Fed actions. 
C) the eventual adoption of price controls. 
D) lower growth rates of aggregate supply. 
A) a lower government budget deficit. 
B) increased credibility for Fed actions. 
C) the eventual adoption of price controls. 
D) lower growth rates of aggregate supply.

Question 20

At the natural rate of unemployment,

Accepted Answer

A) the unemployment rate is zero. 
B) only the structurally and the frictionally unemployed are without jobs. 
C) only the frictionally unemployed are without jobs. 
D) the economy is producing at its maximum level of output. 
A) the unemployment rate is zero. 
B) only the structurally and the frictionally unemployed are without jobs. 
C) only the frictionally unemployed are without jobs. 
D) the economy is producing at its maximum level of output.

Exam 28: Inflation: Causes and Consequences

Attempts by policymakers to keep the rate of unemployment below the natural rate of unemployment for a sustained period of time will result in

The expectations-augmented Phillips curve suggests a trade-off between unemployment and

The typical firm will find that its payoff to reducing price increases after the announcement of a disinflation policy

Nobel laureate Milton Friedman is known for his assertion that,

Inflation occurs whenever

If the money supply is unchanged, expansionary fiscal policy

Disinflation is

The long-run Phillips curve illustrates

Which of the following statements is correct according to both new classical and new Keynesian economists?

If during a particular year, the money supply grows 7%, output grows 2%, and velocity falls 2%, the inflation rate will be

A rule specifying a constant rate of growth of M1 during the early 1980s

Expansionary fiscal policy will produce inflation only if

A one-time increase in oil prices will cause a short-run

Unless ratified by policymakers, cost-push inflation will result in

If during a particular year, the money supply grows 6%, output grows 4%, and velocity grows 2%, the inflation rate will be

Deflation occurs when

If Paul Volcker was a "tough" central banker, why was he unable to reduce inflation without the economy experiencing significant losses in output and employment?

Bracket creep

Economists who back the use of rules by the Fed believe that they would result in

At the natural rate of unemployment,

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

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