Question 1

When deciding whether or not to monetize a deficit, a central bank faces a dilemma, since if it decides

Accepted Answer

A) not to finance the deficit, higher interest rates may lead to the crowding out of private spending 
B)  not to finance the deficit, the domestic currency may depreciate and balance of payments problems may result 
C)  to finance the deficit, excessive monetary growth may lead to inflation 
D) to finance the deficit, interest rates may increase too much 
E) both 
A) and 
C)  
A) not to finance the deficit, higher interest rates may lead to the crowding out of private spending 
B)  not to finance the deficit, the domestic currency may depreciate and balance of payments problems may result 
C)  to finance the deficit, excessive monetary growth may lead to inflation 
D) to finance the deficit, interest rates may increase too much 
E) both 
A) and 
C)

Question 2

Which of the following scenarios will result in the largest reduction in inflation at the lowest cost in terms of a reduction in output?

Accepted Answer

A) monetary restriction combined with fiscal expansion 
B) monetary restriction implemented after an oil price decrease 
C) monetary expansion combined with fiscal contraction 
D) a spending cut combined with a tax cut of equal magnitude 
E) a sharp reduction in monetary growth after an oil price increase 
A) monetary restriction combined with fiscal expansion 
B) monetary restriction implemented after an oil price decrease 
C) monetary expansion combined with fiscal contraction 
D) a spending cut combined with a tax cut of equal magnitude 
E) a sharp reduction in monetary growth after an oil price increase

Question 3

Monetarists generally propose that the government should

Accepted Answer

A) use active monetary policy to stabilize the economy since fiscal policy has no credibility 
B) let money supply grow whenever budget deficits increase to keep interest rates low 
C) always lower monetary growth gradually so inflationary expectations have time to adjust 
D) target nominal interest rates rather than real interest rates, since real interest rates are hard to determine 
E) none of the above 
A) use active monetary policy to stabilize the economy since fiscal policy has no credibility 
B) let money supply grow whenever budget deficits increase to keep interest rates low 
C) always lower monetary growth gradually so inflationary expectations have time to adjust 
D) target nominal interest rates rather than real interest rates, since real interest rates are hard to determine 
E) none of the above

Question 4

Which measure was successful in 2009 in putting an end to Zimbabwean hyperinflation

Accepted Answer

A) the Zimbabwean dollar was devalued by more than half 
B) the old Zimbabwean dollar was replaced by the new Zimbabwean dollar, which had fewer zeros printed on it 
C) the U.S. dollar and the South African rand were substituted for the Zimbabwean dollar as a medium of exchange 
D) money was eliminated in favor of a barter economy 
E) none of the above 
A) the Zimbabwean dollar was devalued by more than half 
B) the old Zimbabwean dollar was replaced by the new Zimbabwean dollar, which had fewer zeros printed on it 
C) the U.S. dollar and the South African rand were substituted for the Zimbabwean dollar as a medium of exchange 
D) money was eliminated in favor of a barter economy 
E) none of the above

Question 5

Which of the following countries did NOT experience hyperinflation during the 1980s?

Accepted Answer

A) Argentina 
B) Bolivia 
C) Brazil 
D) Germany 
E) Israel 
A) Argentina 
B) Bolivia 
C) Brazil 
D) Germany 
E) Israel

Question 6

Assume that the debt-to GDP ratio is 100%, the inflation rate is 2.5% and the total budget deficit is 4% of GDP.What is the inflation-adjusted budget deficit as a percentage of GDP?

Accepted Answer

A) 6)5% 
B) 2)5% 
C) 1)5% 
D) 1)0% 
E) it cannot be determined from this information 
A) 6)5% 
B) 2)5% 
C) 1)5% 
D) 1)0% 
E) it cannot be determined from this information

Question 7

Disinflation is less costly if

Accepted Answer

A) the anti-inflation policy is not announced in advance 
B) wages and prices are not very flexible 
C) it is phased in gradually 
D) a cold turkey approach is chosen 
E) money supply is drastically reduced 
A) the anti-inflation policy is not announced in advance 
B) wages and prices are not very flexible 
C) it is phased in gradually 
D) a cold turkey approach is chosen 
E) money supply is drastically reduced

Question 8

During the hyperinflation in Zimbabwe early in this century, which of the following was TRUE?

Accepted Answer

A) in 2006, the inflation rate reached 1,200 percent 
B) in 2004, the inflation rate reached 600 percent 
C) between January, 2004 and January, 2005, the rate of inflation was cut by 400 percent 
D) in November, 2008, the rate of inflation was about 100 percent a day 
E) all of the above 
A) in 2006, the inflation rate reached 1,200 percent 
B) in 2004, the inflation rate reached 600 percent 
C) between January, 2004 and January, 2005, the rate of inflation was cut by 400 percent 
D) in November, 2008, the rate of inflation was about 100 percent a day 
E) all of the above

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) the relationship between money growth and inflation is much looser for M1 than M2 
B) in the short run, the velocity of M2 is affected by variations in output and interest rates 
C) there is no economic rule that says that velocity must be constant in the long run 
D)  in the long run, the inflation rate is always exactly equal to the growth rate of money supply 
E) higher monetary growth lowers real interest rates in the short run, but raises nominal interest rates in the long run 
A) the relationship between money growth and inflation is much looser for M1 than M2 
B) in the short run, the velocity of M2 is affected by variations in output and interest rates 
C) there is no economic rule that says that velocity must be constant in the long run 
D)  in the long run, the inflation rate is always exactly equal to the growth rate of money supply 
E) higher monetary growth lowers real interest rates in the short run, but raises nominal interest rates in the long run

Question 10

Assuming a long-run relationship, if nominal money supply grows at a rate of 5%, real output growth is 3%, and the inflation rate is 2%, what is the percentage change in velocity?

Accepted Answer

A) 5% 
B) 2% 
C) 1% 
D) 0% 
E) -1% 
A) 5% 
B) 2% 
C) 1% 
D) 0% 
E) -1%

When deciding whether or not to monetize a deficit, a central bank faces a dilemma, since if it decides

Which of the following scenarios will result in the largest reduction in inflation at the lowest cost in terms of a reduction in output?

Monetarists generally propose that the government should

Which measure was successful in 2009 in putting an end to Zimbabwean hyperinflation

Which of the following countries did NOT experience hyperinflation during the 1980s?

Assume that the debt-to GDP ratio is 100%, the inflation rate is 2.5% and the total budget deficit is 4% of GDP.What is the inflation-adjusted budget deficit as a percentage of GDP?

Disinflation is less costly if

During the hyperinflation in Zimbabwe early in this century, which of the following was TRUE?

Which of the following statements is FALSE?

Assuming a long-run relationship, if nominal money supply grows at a rate of 5%, real output growth is 3%, and the inflation rate is 2%, what is the percentage change in velocity?

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

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

International adjustment and interdependence

Advanced topics

Filters

Exam 22: Inflation and hyperinflation

When deciding whether or not to monetize a deficit, a central bank faces a dilemma, since if it decides

Which of the following scenarios will result in the largest reduction in inflation at the lowest cost in terms of a reduction in output?

Monetarists generally propose that the government should

Which measure was successful in 2009 in putting an end to Zimbabwean hyperinflation

Which of the following countries did NOT experience hyperinflation during the 1980s?

Assume that the debt-to GDP ratio is 100%, the inflation rate is 2.5% and the total budget deficit is 4% of GDP.What is the inflation-adjusted budget deficit as a percentage of GDP?

Disinflation is less costly if

During the hyperinflation in Zimbabwe early in this century, which of the following was TRUE?

Which of the following statements is FALSE?

Assuming a long-run relationship, if nominal money supply grows at a rate of 5%, real output growth is 3%, and the inflation rate is 2%, what is the percentage change in velocity?

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

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

International adjustment and interdependence

Advanced topics

Filters