Question 1

Labor contracts that include so-called COLA provisions

Accepted Answer

A) tend to link money wages to price increases 
B) serve to preserve the purchasing power of workers 
C) are a common form of wage indexation in many labor markets 
D) often tie nominal wages to a specific price index 
E) all of the above 
A) tend to link money wages to price increases 
B) serve to preserve the purchasing power of workers 
C) are a common form of wage indexation in many labor markets 
D) often tie nominal wages to a specific price index 
E) all of the above E

Question 2

Which of the following is FALSE?

Accepted Answer

A) automatic cost-of-living adjustments in formal labor contracts are common in many countries 
B) wage indexation is more prevalent in countries where uncertainty about inflation is high 
C) wage indexation is very widespread in the U.S. 
D) an unanticipated increase in the inflation rate will increase the government's real tax revenue 
E) agovernment bond that is indexed to the price level will have either the interest, the principal, or both adjusted for inflation 
A) automatic cost-of-living adjustments in formal labor contracts are common in many countries 
B) wage indexation is more prevalent in countries where uncertainty about inflation is high 
C) wage indexation is very widespread in the U.S. 
D) an unanticipated increase in the inflation rate will increase the government's real tax revenue 
E) agovernment bond that is indexed to the price level will have either the interest, the principal, or both adjusted for inflation C

Question 3

People should be concerned about imperfectly anticipated inflation since

Accepted Answer

A) it results in a redistribution of wealth 
B) debtors tend to profit while creditors tend to lose 
C) equity holders experience a loss in the real value of fixed dividends 
D) they may move into higher tax brackets as nominal wages are adjusted for inflation 
E) all of the above 
A) it results in a redistribution of wealth 
B) debtors tend to profit while creditors tend to lose 
C) equity holders experience a loss in the real value of fixed dividends 
D) they may move into higher tax brackets as nominal wages are adjusted for inflation 
E) all of the above E

Question 4

An unanticipated increase in inflation is a problem since

Accepted Answer

A) gains and losses from real wealth transfers cannot be easily predicted 
B) higher inflation always means lower growth in real GDP 
C) it will lead to a decrease in nominal wages 
D) households who hold fixed dollar assets will experience a higher real rate of return 
E) none of the above 
A) gains and losses from real wealth transfers cannot be easily predicted 
B) higher inflation always means lower growth in real GDP 
C) it will lead to a decrease in nominal wages 
D) households who hold fixed dollar assets will experience a higher real rate of return 
E) none of the above

Question 5

The unanticipated inflation of the last several decades benefited largely

Accepted Answer

A) elderly people whose major source of income comes from private pension plans 
B) lending institutions, especially savings and loans 
C) homeowners with fixed mortgage rates 
D) taxpayers 
E) all of the above 
A) elderly people whose major source of income comes from private pension plans 
B) lending institutions, especially savings and loans 
C) homeowners with fixed mortgage rates 
D) taxpayers 
E) all of the above

Question 6

If you had $1,000 in a savings account that paid 4% interest compounded annually, how much would you have in your account after three years?

Accepted Answer

A) $1,012 
B) $1,120 
C) $1,125 
D) $1,250 
E) $1,400 
A) $1,012 
B) $1,120 
C) $1,125 
D) $1,250 
E) $1,400

Question 7

If inflation were always perfectly anticipated, then

Accepted Answer

A) its real costs would exactly equal the inflation rate 
B) people would hold less cash but would still suffer losses since money balances are always positive 
C) the yield on interest-bearing assets would exactly compensate for losses on non-interest bearing assets 
D) unemployment would always be at 4 percent 
E) wage indexation would not work 
A) its real costs would exactly equal the inflation rate 
B) people would hold less cash but would still suffer losses since money balances are always positive 
C) the yield on interest-bearing assets would exactly compensate for losses on non-interest bearing assets 
D) unemployment would always be at 4 percent 
E) wage indexation would not work

Question 8

The view that a small positive rate of inflation may actually be good for the economy was first advanced by

Accepted Answer

A) Ben Bernanke 
B) Milton Friedman 
C) John Maynard Keynes 
D) William Poole 
E) James Tobin 
A) Ben Bernanke 
B) Milton Friedman 
C) John Maynard Keynes 
D) William Poole 
E) James Tobin

Question 9

The concern over inflation

Accepted Answer

A) is not justified since gains and losses from real wealth transfers cancel out over time for the economy as a whole 
B) is irrational since high inflation generally means high growth 
C) is attributable primarily to increased transfers arising from cost-of-living adjustments 
D) stems from the fact that inflation is rarely predictable and those households who hold fixed dollar assets will experience a loss in wealth 
E) none of the above 
A) is not justified since gains and losses from real wealth transfers cancel out over time for the economy as a whole 
B) is irrational since high inflation generally means high growth 
C) is attributable primarily to increased transfers arising from cost-of-living adjustments 
D) stems from the fact that inflation is rarely predictable and those households who hold fixed dollar assets will experience a loss in wealth 
E) none of the above

Question 10

The redistribution effect that arises from an unanticipated increase in inflation will affect

Accepted Answer

A) insurance contracts 
B) cash holdings 
C) people who own fixed rate bonds 
D) all of the above 
E) only B and C 
A) insurance contracts 
B) cash holdings 
C) people who own fixed rate bonds 
D) all of the above 
E) only B and C

Question 11

If you had owned a ten-year Treasury bond from 2000 to 2009, what would have been your real rate of return?

Accepted Answer

A) 0)1% 
B) 0)9% 
C) 1)9% 
D) 2)6% 
E) 6)2% 
A) 0)1% 
B) 0)9% 
C) 1)9% 
D) 2)6% 
E) 6)2%

Question 12

If inflation were always perfectly anticipated and contracts were written in real terms, then

Accepted Answer

A) there would only be a transfer of wealth from debtors to creditors 
B) there would only be a transfer of wealth from creditors to debtors 
C) there would only be a transfer of wealth from the poor to the rich 
D) there would only be a transfer of wealth from households to firms 
E) currency holders would have a negative rate of return 
A) there would only be a transfer of wealth from debtors to creditors 
B) there would only be a transfer of wealth from creditors to debtors 
C) there would only be a transfer of wealth from the poor to the rich 
D) there would only be a transfer of wealth from households to firms 
E) currency holders would have a negative rate of return

Question 13

What interest rate should a banker charge for a loan if she expects that the inflation rate will average about 2.4% over the length of the loan, but wants she a 3% real rate of return?

Accepted Answer

A) 7)2% 
B) 5)4% 
C) 3)0% 
D) 2)4% 
E) 0)6% 
A) 7)2% 
B) 5)4% 
C) 3)0% 
D) 2)4% 
E) 0)6%

Question 14

Which of the following is FALSE?

Accepted Answer

A) wage indexation is widespread in the U.S. 
B) the economy will adjust to supply shocks more easily if there is widespread wage indexation 
C) the holder of an indexed government bond will lose if an increase in inflation is unanticipated 
D) the government loses real tax revenue if there is an unanticipated increase in the inflation rate 
E) all of the above 
A) wage indexation is widespread in the U.S. 
B) the economy will adjust to supply shocks more easily if there is widespread wage indexation 
C) the holder of an indexed government bond will lose if an increase in inflation is unanticipated 
D) the government loses real tax revenue if there is an unanticipated increase in the inflation rate 
E) all of the above

Question 15

In which time period was the average real yield on a three-month Treasury bill the highest?

Accepted Answer

A) 1960 to 1969 
B) 1970 to 1979 
C) 1980 to 1989 
D) 1990 to 1999 
E) 2000 to 2009 
A) 1960 to 1969 
B) 1970 to 1979 
C) 1980 to 1989 
D) 1990 to 1999 
E) 2000 to 2009

Question 16

Which of the following is FALSE, if an increase in the inflation rate cannot be perfectly anticipated?

Accepted Answer

A) there will be a redistribution of income and wealth 
B) debtors will benefit while creditors will lose 
C) the holder of an indexed government bond will lose 
D) the government will gain real tax revenue 
E) the real value of government debt will decline 
A) there will be a redistribution of income and wealth 
B) debtors will benefit while creditors will lose 
C) the holder of an indexed government bond will lose 
D) the government will gain real tax revenue 
E) the real value of government debt will decline

Question 17

If the yearly inflation rate could be always be perfectly anticipated, then

Accepted Answer

A) currency holders would still have a negative rate of return 
B) menu costs would still arise 
C) people would still have to worry about shoe-leather costs 
D) the costs of inflation to society would be small 
E) all of the above 
A) currency holders would still have a negative rate of return 
B) menu costs would still arise 
C) people would still have to worry about shoe-leather costs 
D) the costs of inflation to society would be small 
E) all of the above

Question 18

If you had $3,000 in a savings account that paid 5% interest compounded annually, how much would you have in your account after five years?

Accepted Answer

A) $3,484 
B) $3,629 
C) $3,750 
D) $3,829 
E) $4,224 
A) $3,484 
B) $3,629 
C) $3,750 
D) $3,829 
E) $4,224

Question 19

Which of the following is TRUE?

Accepted Answer

A) the costs of unemployment on output are more apparent than the cost of inflation on output 
B) the costs of inflation on output are more apparent than the cost of unemployment on output 
C) the costs of inflation on output can be measured by Okun's law 
D) unanticipated inflation only imposes a cost on currency holders 
E) there are no costs to society from anticipated inflation 
A) the costs of unemployment on output are more apparent than the cost of inflation on output 
B) the costs of inflation on output are more apparent than the cost of unemployment on output 
C) the costs of inflation on output can be measured by Okun's law 
D) unanticipated inflation only imposes a cost on currency holders 
E) there are no costs to society from anticipated inflation

Question 20

Which of the following statements is FALSE?

Accepted Answer

A) homeowners with fixed-rate mortgages benefit from unanticipated high inflation 
B) the costs of unanticipated inflation can be ignored, since the gains and losses of induced wealth transfers tend to cancel each other out over the economy as a whole 
C) Social Security beneficiaries are better protected against unanticipated inflation than workers with long-term contracts 
D) at least until 1985, the U.S. government gained from unanticipated inflation at the expense of U.S. taxpayers 
E) workers who received the minimum wage greatly suffered from unanticipated inflation 
A) homeowners with fixed-rate mortgages benefit from unanticipated high inflation 
B) the costs of unanticipated inflation can be ignored, since the gains and losses of induced wealth transfers tend to cancel each other out over the economy as a whole 
C) Social Security beneficiaries are better protected against unanticipated inflation than workers with long-term contracts 
D) at least until 1985, the U.S. government gained from unanticipated inflation at the expense of U.S. taxpayers 
E) workers who received the minimum wage greatly suffered from unanticipated inflation

Exam 8: Inflation

Labor contracts that include so-called COLA provisions

Which of the following is FALSE?

People should be concerned about imperfectly anticipated inflation since

An unanticipated increase in inflation is a problem since

The unanticipated inflation of the last several decades benefited largely

If you had $1,000 in a savings account that paid 4% interest compounded annually, how much would you have in your account after three years?

If inflation were always perfectly anticipated, then

The view that a small positive rate of inflation may actually be good for the economy was first advanced by

The concern over inflation

The redistribution effect that arises from an unanticipated increase in inflation will affect

If you had owned a ten-year Treasury bond from 2000 to 2009, what would have been your real rate of return?

If inflation were always perfectly anticipated and contracts were written in real terms, then

What interest rate should a banker charge for a loan if she expects that the inflation rate will average about 2.4% over the length of the loan, but wants she a 3% real rate of return?

Which of the following is FALSE?

In which time period was the average real yield on a three-month Treasury bill the highest?

Which of the following is FALSE, if an increase in the inflation rate cannot be perfectly anticipated?

If the yearly inflation rate could be always be perfectly anticipated, then

If you had $3,000 in a savings account that paid 5% interest compounded annually, how much would you have in your account after five years?

Which of the following is TRUE?

Which of the following statements is FALSE?

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

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