Question 1

All else being equal, a one-time increase in the money supply leads to

Accepted Answer

A) inflation. 
B) a one-time increase in the price level. 
C) a one-time shift to the left in the AD curve. 
D) a permanent shift to the right in the SRAS curve. 
A) inflation. 
B) a one-time increase in the price level. 
C) a one-time shift to the left in the AD curve. 
D) a permanent shift to the right in the SRAS curve.

Question 2

Suppose the Fed sets an inflation target of 2% a year. If economic growth averages 3% per year and velocity grows by 1% per year, by how much should it increase the money supply each year?

Accepted Answer

A) 2% 
B) 4% 
C) 5% 
D) 6% 
A) 2% 
B) 4% 
C) 5% 
D) 6%

Question 3

Government budget deficits can be inflationary in the long run only if they

Accepted Answer

A) occur as a result of large cuts in the personal income tax rate. 
B) occur as a result of large increases in defense spending. 
C) cause a leftward shift in the SRAS curve. 
D) are accompanied by rapid growth in the monetary base. 
A) occur as a result of large cuts in the personal income tax rate. 
B) occur as a result of large increases in defense spending. 
C) cause a leftward shift in the SRAS curve. 
D) are accompanied by rapid growth in the monetary base.

Question 4

In the new Keynesian view, a disinflation policy

Accepted Answer

A) will almost always result in a recession. 
B) will rarely be credible. 
C) should use the cold turkey, rather than the gradual, approach. 
D) shifts the LRAS curve. 
A) will almost always result in a recession. 
B) will rarely be credible. 
C) should use the cold turkey, rather than the gradual, approach. 
D) shifts the LRAS curve.

Question 5

A one-time cut in taxes

Accepted Answer

A) can result in inflation. 
B) can result in a one-time increase in the price level, but cannot result in inflation. 
C) can result in a one-time decrease in the price level, but cannot result in inflation. 
D) will cause a dollar-for-dollar increase in the money supply. 
A) can result in inflation. 
B) can result in a one-time increase in the price level, but cannot result in inflation. 
C) can result in a one-time decrease in the price level, but cannot result in inflation. 
D) will cause a dollar-for-dollar increase in the money supply.

Question 6

During the late 1970s, households, businesses, and policymakers shifted to the opinion that

Accepted Answer

A) higher inflation was acceptable provided it resulted in higher employment. 
B) higher inflation was acceptable provided it resulted in higher output. 
C) reducing inflation was necessary even if it resulted in lower levels of employment and output. 
D) a reduction in inflation should take place provided it did not result in disinflation. 
A) higher inflation was acceptable provided it resulted in higher employment. 
B) higher inflation was acceptable provided it resulted in higher output. 
C) reducing inflation was necessary even if it resulted in lower levels of employment and output. 
D) a reduction in inflation should take place provided it did not result in disinflation.

Question 7

Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning aggregate supply?

Accepted Answer

A) New classical economists believe the short-run and long-run aggregate supply curves are both vertical. 
B) New Keynesian economists believe the short-run and long-run aggregate supply curves slope upward. 
C) Both new Keynesian and new classical economists believe the aggregate supply curve slopes upward in the long run. 
D) Both new Keynesian and new classical economists believe the aggregate supply curve slopes upward in the short run. 
A) New classical economists believe the short-run and long-run aggregate supply curves are both vertical. 
B) New Keynesian economists believe the short-run and long-run aggregate supply curves slope upward. 
C) Both new Keynesian and new classical economists believe the aggregate supply curve slopes upward in the long run. 
D) Both new Keynesian and new classical economists believe the aggregate supply curve slopes upward in the short run.

Question 8

If during a particular year, output grows 5%, velocity declines 2%, and the inflation rate is 1%, then the money supply must have grown

Accepted Answer

A) -6%. 
B) 2%. 
C) 4%. 
D) 8%. 
A) -6%. 
B) 2%. 
C) 4%. 
D) 8%.

Question 9

The tax code

Accepted Answer

A) adjusts values of inventories for inflation, but does not adjust the value of depreciation allowances. 
B) adjusts the value of depreciation allowances for inflation, but does not adjust values of inventories. 
C) adjusts both values of inventories and the value of depreciation allowances for inflation. 
D) adjusts neither the values of inventories nor the value of depreciation allowances for inflation. 
A) adjusts values of inventories for inflation, but does not adjust the value of depreciation allowances. 
B) adjusts the value of depreciation allowances for inflation, but does not adjust values of inventories. 
C) adjusts both values of inventories and the value of depreciation allowances for inflation. 
D) adjusts neither the values of inventories nor the value of depreciation allowances for inflation.

Question 10

According to the equation of exchange, the percentage change in the nominal money supply (   ) is equal to

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 11

New Keynesian economists question the credibility of cold turkey disinflation in the real world because

Accepted Answer

A) the independence of central banks allows them to disregard public opinion. 
B) households and businesses do not form their expectations rationally. 
C) a reduction in money growth may reduce output and employment substantially in the short run. 
D) central banks lack the tools to bring the inflation rate down even in the long run. 
A) the independence of central banks allows them to disregard public opinion. 
B) households and businesses do not form their expectations rationally. 
C) a reduction in money growth may reduce output and employment substantially in the short run. 
D) central banks lack the tools to bring the inflation rate down even in the long run.

Question 12

In 1999, which currency did Montenegro officially adopt as its national currency?

Accepted Answer

A) U.S. dollar 
B) German mark 
C) Serbian dinar 
D) Japanese yen 
A) U.S. dollar 
B) German mark 
C) Serbian dinar 
D) Japanese yen

Question 13

What action did Milosevic take that led to hyperinflation in Yugoslavia in the mid 1990s?

Accepted Answer

A) Removal of wage and price controls 
B) Having the Serbian National Bank issue over a billion dollars in credits to his political allies 
C) Lowering the discount rate to almost 0% 
D) Doubling taxes to pay for war with Croatia 
A) Removal of wage and price controls 
B) Having the Serbian National Bank issue over a billion dollars in credits to his political allies 
C) Lowering the discount rate to almost 0% 
D) Doubling taxes to pay for war with Croatia

Question 14

In 1979 most S&Ls had mortgage loans on their books that paid nominal interest rates of less than 10%. The inflation rate for 1979 was greater than 11%. Why weren't these S&Ls charging mortgage interest rates greater than the inflation rate?

Accepted Answer

On new mortgages, S&Ls were charging int

Question 15

New classical economists believe that the best way to reduce inflation is to

Accepted Answer

A) do so gradually. 
B) do so all at once. 
C) use wage and price guidelines. 
D) bring on a recession, which gradually reduces cost-push inflation. 
A) do so gradually. 
B) do so all at once. 
C) use wage and price guidelines. 
D) bring on a recession, which gradually reduces cost-push inflation.

Question 16

During the 1970s

Accepted Answer

A) Japanese disinflation policy was not credible, but that of the United States was credible. 
B) neither Japanese nor U.S. disinflation policies were credible. 
C) both Japanese and U.S. disinflation policies were credible. 
D) U.S. disinflation policy was not credible, but Japanese disinflation policy was credible. 
A) Japanese disinflation policy was not credible, but that of the United States was credible. 
B) neither Japanese nor U.S. disinflation policies were credible. 
C) both Japanese and U.S. disinflation policies were credible. 
D) U.S. disinflation policy was not credible, but Japanese disinflation policy was credible.

Question 17

Cost-push inflation results from

Accepted Answer

A) workers' pressure for higher wages. 
B) policymakers' attempts to increase aggregate demand for current output above the full-employment level. 
C) attempts by financial markets to deal with bracket creep. 
D) attempts by the public to receive higher after-tax returns on their savings. 
A) workers' pressure for higher wages. 
B) policymakers' attempts to increase aggregate demand for current output above the full-employment level. 
C) attempts by financial markets to deal with bracket creep. 
D) attempts by the public to receive higher after-tax returns on their savings.

Question 18

Whom did President Jimmy Carter appoint chair of the Board of Governors of the Fed in order to convince the public about his anti-inflation resolve?

Accepted Answer

A) Alan Greenspan 
B) Milton Friedman 
C) Paul Volcker 
D) Arthur Burns 
A) Alan Greenspan 
B) Milton Friedman 
C) Paul Volcker 
D) Arthur Burns

Question 19

In the new Keynesian view, disinflation is costly primarily because

Accepted Answer

A) workers and firms lack rational expectations. 
B) policy announcements are rarely credible. 
C) nominal wages and prices are sticky. 
D) disinflation policy shifts the LRAS curve. 
A) workers and firms lack rational expectations. 
B) policy announcements are rarely credible. 
C) nominal wages and prices are sticky. 
D) disinflation policy shifts the LRAS curve.

Question 20

Sustained growth in the money supply doesn't affect real output in the long run but does lead to inflation according to

Accepted Answer

A) new classical economists, but not new Keynesian economists. 
B) both new classical and new Keynesian economists. 
C) new Keynesian economists, but not new classical economists. 
D) neither new classical nor new Keynesian economists. 
A) new classical economists, but not new Keynesian economists. 
B) both new classical and new Keynesian economists. 
C) new Keynesian economists, but not new classical economists. 
D) neither new classical nor new Keynesian economists.

Exam 28: Inflation: Causes and Consequences

All else being equal, a one-time increase in the money supply leads to

Suppose the Fed sets an inflation target of 2% a year. If economic growth averages 3% per year and velocity grows by 1% per year, by how much should it increase the money supply each year?

Government budget deficits can be inflationary in the long run only if they

In the new Keynesian view, a disinflation policy

A one-time cut in taxes

During the late 1970s, households, businesses, and policymakers shifted to the opinion that

Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning aggregate supply?

If during a particular year, output grows 5%, velocity declines 2%, and the inflation rate is 1%, then the money supply must have grown

The tax code

According to the equation of exchange, the percentage change in the nominal money supply ( ) is equal to

New Keynesian economists question the credibility of cold turkey disinflation in the real world because

In 1999, which currency did Montenegro officially adopt as its national currency?

What action did Milosevic take that led to hyperinflation in Yugoslavia in the mid 1990s?

In 1979 most S&Ls had mortgage loans on their books that paid nominal interest rates of less than 10%. The inflation rate for 1979 was greater than 11%. Why weren't these S&Ls charging mortgage interest rates greater than the inflation rate?

New classical economists believe that the best way to reduce inflation is to

During the 1970s

Cost-push inflation results from

Whom did President Jimmy Carter appoint chair of the Board of Governors of the Fed in order to convince the public about his anti-inflation resolve?

In the new Keynesian view, disinflation is costly primarily because

Sustained growth in the money supply doesn't affect real output in the long run but does lead to inflation according to

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

Filters