Question 1

Why was it so important for Paul Volcker that he convince the public that he was committed to reduce the inflation rate in the 1980s?

Accepted Answer

Volcker wanted to reduce expectations of

Question 2

If the government prints a $500 bill and it takes the government $2.50 to print the $500 bill, then the $497.50 net revenue that the government raises is called:

Accepted Answer

A)  a subsidy. 
B)  a Treasury bond. 
C)  federal funds. 
D)  seignorage. 
A)  a subsidy. 
B)  a Treasury bond. 
C)  federal funds. 
D)  seignorage.

Question 3

Economists argue that central banks that are credible in their fight against inflation can more easily:

Accepted Answer

A)  lower inflation without creating extra unemployment. 
B)  lead the economy into a depression. 
C)  buy bonds. 
D)  increase the money supply. 
A)  lower inflation without creating extra unemployment. 
B)  lead the economy into a depression. 
C)  buy bonds. 
D)  increase the money supply.

Question 4

An increase in the velocity of money can cause an increase in real GDP.

Accepted Answer

A) True 
 B)False

Question 5

The Phillips curve suggests that if we want to lower the inflation rate, we must accept a higher unemployment rate in return.

Accepted Answer

A) True 
 B)False

Question 6

Rule- of- thumb methods of forecasting inflation uses rational expectations.

Accepted Answer

A) True 
 B)False

Question 7

Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to
answer the following questions:
-According to the application, if the bonds that were not adjusted for inflation and the inflation adjusted bonds had the same yield, then:

Accepted Answer

A)  people expect lower inflation. 
B)  people expect higher inflation. 
C)  people expect that bond yield equals zero. 
D)  people expect zero inflation. 
A)  people expect lower inflation. 
B)  people expect higher inflation. 
C)  people expect that bond yield equals zero. 
D)  people expect zero inflation.

Question 8

Which of the following is an example of a real wage?

Accepted Answer

A)  €120 million per year 
B)  $2400 per month (using 1990 prices) 
C)  $12 per hour 
D)  All of the above are examples of nominal wages. 
A)  €120 million per year 
B)  $2400 per month (using 1990 prices) 
C)  $12 per hour 
D)  All of the above are examples of nominal wages.

Question 9

If the Fed is strongly committed to fighting inflation, it will be reluctant to:

Accepted Answer

A)  focus solely on price stabilization. 
B)  become too independent from Congress. 
C)  increase the money supply. 
D)  increase unemployment. 
A)  focus solely on price stabilization. 
B)  become too independent from Congress. 
C)  increase the money supply. 
D)  increase unemployment.

Question 10

In 1994, the velocity of money = 3 and the Money Supply = $700 billion. Based on this information answer the following questions. Assume 1994 is the base year.
(a) What are the values of nominal and real GDP for 1994?
(b) If the money supply increases 10% in 1995, what is the effect on nominal GDP, assuming the velocity is constant?
(c) Using the same data from Part (b), if the velocity of money also changes from 3 to 2, now what is the effect on GDP?

Accepted Answer

(a) M x V = nominal GDP, thus $700 x 3 =

Question 11

The velocity of money is 3. If nominal GDP is $1,500 billion then the money supply is:

Accepted Answer

A)  $500 billion. 
B)  $300 billion. 
C)  $4,800 billion. 
D)  $400 billion. 
A)  $500 billion. 
B)  $300 billion. 
C)  $4,800 billion. 
D)  $400 billion.

Question 12

To end hyperinflation, the government must first:

Accepted Answer

A)  eliminate tax collection. 
B)  eliminate the use of money. 
C)  eliminate the budget deficits. 
D)  be replaced. 
A)  eliminate tax collection. 
B)  eliminate the use of money. 
C)  eliminate the budget deficits. 
D)  be replaced.

Question 13

Which of the following is an example of a nominal wage?

Accepted Answer

A)  $12 per hour 
B)  €120 million per year 
C)  $2400 per month 
D)  All of the above are examples of nominal wages. 
A)  $12 per hour 
B)  €120 million per year 
C)  $2400 per month 
D)  All of the above are examples of nominal wages.

Question 14

The expectations augmented Phillips curve argues that unemployment varies with anticipated inflation.

Accepted Answer

A) True 
 B)False

Question 15

If expectations regarding inflation change, an expansionary fiscal policy causes:

Accepted Answer

A)  the short- run Phillips curve to shift. 
B)  a movement along the short- run Phillips curve. 
C)  the long- run Phillips curve to shift. 
D)  the short- run Phillips curve to remain constant. 
A)  the short- run Phillips curve to shift. 
B)  a movement along the short- run Phillips curve. 
C)  the long- run Phillips curve to shift. 
D)  the short- run Phillips curve to remain constant.

Question 16

The quantity equation can be written as:

Accepted Answer

A)  M/V = PY. 
B)  MV = P/Y. 
C)  MV = PY. 
D)  MP = VP. 
A)  M/V = PY. 
B)  MV = P/Y. 
C)  MV = PY. 
D)  MP = VP.

Question 17

The velocity of money measures:

Accepted Answer

A)  the relationship between money supply and money demand. 
B)  the ratio of deposits to money supply. 
C)  the number of times the Fed increases money supply in a year. 
D)  the number of times a typical dollar changes hands in a year. 
A)  the relationship between money supply and money demand. 
B)  the ratio of deposits to money supply. 
C)  the number of times the Fed increases money supply in a year. 
D)  the number of times a typical dollar changes hands in a year.

Question 18

When Bob receives a 5 percent nominal wage increase in a period where inflation is also 5 percent, then we say that he experiences money illusion when:

Accepted Answer

A)  when he believes that his real wage did not change. 
B)  he believes that his real wage decreased. 
C)  he believes that his real wage increased. 
D)  All of the above are correct. 
A)  when he believes that his real wage did not change. 
B)  he believes that his real wage decreased. 
C)  he believes that his real wage increased. 
D)  All of the above are correct.

Question 19

Explain what role expectations play in determining the Phillips curve.

Accepted Answer

Expectations of future prices can play a

Question 20

Assume that households and firms have rational expectations. The current unemployment rate is 7%, which is above the natural rate of unemployment. Explain how this can happen. Would you expect this unemployment rate to persist for long? Why or why not?

Accepted Answer

The unemployment rate can temporarily be

Why was it so important for Paul Volcker that he convince the public that he was committed to reduce the inflation rate in the 1980s?

If the government prints a $500 bill and it takes the government $2.50 to print the $500 bill, then the $497.50 net revenue that the government raises is called:

Economists argue that central banks that are credible in their fight against inflation can more easily:

An increase in the velocity of money can cause an increase in real GDP.

The Phillips curve suggests that if we want to lower the inflation rate, we must accept a higher unemployment rate in return.

Rule- of- thumb methods of forecasting inflation uses rational expectations.

Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to answer the following questions: -According to the application, if the bonds that were not adjusted for inflation and the inflation adjusted bonds had the same yield, then:

Which of the following is an example of a real wage?

If the Fed is strongly committed to fighting inflation, it will be reluctant to:

The velocity of money is 3. If nominal GDP is $1,500 billion then the money supply is:

To end hyperinflation, the government must first:

Which of the following is an example of a nominal wage?

The expectations augmented Phillips curve argues that unemployment varies with anticipated inflation.

If expectations regarding inflation change, an expansionary fiscal policy causes:

The quantity equation can be written as:

The velocity of money measures:

When Bob receives a 5 percent nominal wage increase in a period where inflation is also 5 percent, then we say that he experiences money illusion when:

Explain what role expectations play in determining the Phillips curve.

Assume that households and firms have rational expectations. The current unemployment rate is 7%, which is above the natural rate of unemployment. Explain how this can happen. Would you expect this unemployment rate to persist for long? Why or why not?

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 16: The Dynamics of Inflation and Unemployment

Why was it so important for Paul Volcker that he convince the public that he was committed to reduce the inflation rate in the 1980s?

If the government prints a $500 bill and it takes the government $2.50 to print the $500 bill, then the $497.50 net revenue that the government raises is called:

Economists argue that central banks that are credible in their fight against inflation can more easily:

An increase in the velocity of money can cause an increase in real GDP.

The Phillips curve suggests that if we want to lower the inflation rate, we must accept a higher unemployment rate in return.

Rule- of- thumb methods of forecasting inflation uses rational expectations.

Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to answer the following questions: -According to the application, if the bonds that were not adjusted for inflation and the inflation adjusted bonds had the same yield, then:

Which of the following is an example of a real wage?

If the Fed is strongly committed to fighting inflation, it will be reluctant to:

The velocity of money is 3. If nominal GDP is $1,500 billion then the money supply is:

To end hyperinflation, the government must first:

Which of the following is an example of a nominal wage?

The expectations augmented Phillips curve argues that unemployment varies with anticipated inflation.

If expectations regarding inflation change, an expansionary fiscal policy causes:

The quantity equation can be written as:

The velocity of money measures:

When Bob receives a 5 percent nominal wage increase in a period where inflation is also 5 percent, then we say that he experiences money illusion when:

Explain what role expectations play in determining the Phillips curve.

Assume that households and firms have rational expectations. The current unemployment rate is 7%, which is above the natural rate of unemployment. Explain how this can happen. Would you expect this unemployment rate to persist for long? Why or why not?

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters