Question 1

What is meant by the institutional costs of inflation?

Accepted Answer

Institutional costs of inflation are the loss of trust in government caused by inflation.People rely on government to provide a stable infrastructure within which to make decisions and enter into contracts.Unexpected inflation can undermine this contractual infrastructure of the economy,causing people to lose faith in government.If the loss of trust is significantly high,inflation will hinder establishing contracts,make it difficult for businesses to plan for the future and therefore undermine economic growth.

Question 2

If expected inflation increases:

Accepted Answer

A) the short-run Phillips curve shifts up. 
B) the short-run Phillips curve shifts down. 
C) the short-run Phillips curve remains unchanged. 
D) there is a movement along a short-run Phillips curve. 
A) the short-run Phillips curve shifts up. 
B) the short-run Phillips curve shifts down. 
C) the short-run Phillips curve remains unchanged. 
D) there is a movement along a short-run Phillips curve. A

Question 3

Generally, in the United States today, goods inflation:

Accepted Answer

A) under 5 percent is considered acceptable. 
B) under 2.5 percent is considered acceptable. 
C) at zero is considered acceptable. 
D) that is negative is preferable. 
A) under 5 percent is considered acceptable. 
B) under 2.5 percent is considered acceptable. 
C) at zero is considered acceptable. 
D) that is negative is preferable. B

Question 4

Suppose the money supply is $8 trillion and nominal GDP is $14.2 trillion. What is the velocity of money?

Accepted Answer

A) 1.8 
B) 8.0 
C) 112 
D) We cannot compute it without knowing real GDP. 
A) 1.8 
B) 8.0 
C) 112 
D) We cannot compute it without knowing real GDP.

Question 5

If inflation is highly volatile, money is:

Accepted Answer

A) more valuable because you need more of it. 
B) less valuable because there is less of it. 
C) more valuable because its unit of account function is reduced. 
D) less valuable because its unit of account function is reduced. 
A) more valuable because you need more of it. 
B) less valuable because there is less of it. 
C) more valuable because its unit of account function is reduced. 
D) less valuable because its unit of account function is reduced.

Question 6

Asset price inflation can be a problem because it:

Accepted Answer

A) gives people the illusion that their real wealth has decreased more than it really has. 
B) makes people switch their resources from risky investments to conservative investments. 
C) gives people the illusion that their real wealth has increased more than it really has. 
D) typically increases at the same rate as goods price inflation. 
A) gives people the illusion that their real wealth has decreased more than it really has. 
B) makes people switch their resources from risky investments to conservative investments. 
C) gives people the illusion that their real wealth has increased more than it really has. 
D) typically increases at the same rate as goods price inflation.

Question 7

According to the quantity theory of money, if the money supply increases by 12 percent, then in the long run, prices go:

Accepted Answer

A) down by 12 percent. 
B) up by less than 12 percent. 
C) up by 12 percent. 
D) up by more than 12 percent. 
A) down by 12 percent. 
B) up by less than 12 percent. 
C) up by 12 percent. 
D) up by more than 12 percent.

Question 8

Refer to the graph shown. If actual inflation is 12 percent and expected inflation is 6 percent, the economy will be at point:

Accepted Answer

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

Question 9

Asset deflation generally:

Accepted Answer

A) is more harmful than the preceding inflation was helpful. 
B) is less harmful than the preceding inflation was helpful. 
C) is neither good nor bad, it merely redistributes income. 
D) cannot occur because people will know it will follow asset inflation. 
A) is more harmful than the preceding inflation was helpful. 
B) is less harmful than the preceding inflation was helpful. 
C) is neither good nor bad, it merely redistributes income. 
D) cannot occur because people will know it will follow asset inflation.

Question 10

Unemployment rates above the target rate of unemployment lead to:

Accepted Answer

A) an upward shift of the short-run Phillips curve. 
B) a downward shift of the short-run Phillips curve. 
C) a rightward shift of the long-run Phillips curve. 
D) a leftward shift of the long-run Phillips curve. 
A) an upward shift of the short-run Phillips curve. 
B) a downward shift of the short-run Phillips curve. 
C) a rightward shift of the long-run Phillips curve. 
D) a leftward shift of the long-run Phillips curve.

Question 11

Who wins and who loses when there is an unexpected inflation? Explain and give two examples - one dealing with wages and other dealing with interest rates.

Accepted Answer

When there is unexpected inflation,those

Question 12

Asset inflation tends to hurt those who save in risky assets.

Accepted Answer

A) True 
 B)False

Question 13

According to the quantity theory of money, persistent inflation can only be caused by:

Accepted Answer

A) a low rate of unemployment. 
B) money supply growth that exceeds real GDP growth. 
C) a high rate of unemployment. 
D) a continually-growing government deficit. 
A) a low rate of unemployment. 
B) money supply growth that exceeds real GDP growth. 
C) a high rate of unemployment. 
D) a continually-growing government deficit.

Question 14

Economists who believe in the quantity theory of money argue that:

Accepted Answer

A) the causation in the equation of exchange goes from PQ to MV. 
B) the causation in the equation of exchange goes from MV to PQ. 
C) the causation in the equation of exchange could go either way. 
D) there is no causation in the equation of exchange. 
A) the causation in the equation of exchange goes from PQ to MV. 
B) the causation in the equation of exchange goes from MV to PQ. 
C) the causation in the equation of exchange could go either way. 
D) there is no causation in the equation of exchange.

Question 15

Along the long-run Phillips curve, inflation and expected inflation are:

Accepted Answer

A) constant but not equal. 
B) both constant and equal. 
C) equal but not constant. 
D) neither equal nor constant. 
A) constant but not equal. 
B) both constant and equal. 
C) equal but not constant. 
D) neither equal nor constant.

Question 16

Before the financial crisis of 2008:

Accepted Answer

A) the 2.5 percent inflation target was seen as a lower bound. 
B) the 2.5 percent inflation target was seen as an upper bound. 
C) the 2.5 percent inflation target was seen as a precise target. 
D) inflation was not seen as a target. 
A) the 2.5 percent inflation target was seen as a lower bound. 
B) the 2.5 percent inflation target was seen as an upper bound. 
C) the 2.5 percent inflation target was seen as a precise target. 
D) inflation was not seen as a target.

Question 17

Suppose you sell surfboards for a living, and you expect the price of surfboards to increase at the same rate as inflation; you adjust your prices accordingly. If this does not occur, then it must be true that:

Accepted Answer

A) the price of surfboards is changing at a rate that is different from what was expected. 
B) the inflation rate is different from what was expected. 
C) both the price of surfboards and the inflation rate are different from what was expected. 
D) the relative price of surfboards is changing. 
A) the price of surfboards is changing at a rate that is different from what was expected. 
B) the inflation rate is different from what was expected. 
C) both the price of surfboards and the inflation rate are different from what was expected. 
D) the relative price of surfboards is changing.

Question 18

The higher the rate of inflation, the lower the:

Accepted Answer

A) real interest rate can fall, as long as it is positive. 
B) nominal interest rate can fall, as long as it is positive. 
C) nominal interest rate can fall. 
D) real interest rate can fall. 
A) real interest rate can fall, as long as it is positive. 
B) nominal interest rate can fall, as long as it is positive. 
C) nominal interest rate can fall. 
D) real interest rate can fall.

Question 19

As the economy moves to the right of the long-run Phillips curve, inflationary:

Accepted Answer

A) pressures build. 
B) pressures subside. 
C) pressures remain constant. 
D) expectations rise. 
A) pressures build. 
B) pressures subside. 
C) pressures remain constant. 
D) expectations rise.

Question 20

Explain the difference between the distributional effects of asset inflation from the distributional effects of goods inflation.

Accepted Answer

The winners of any inflation are the peo

Exam 34: Inflation, Deflation, and Macro Policy

What is meant by the institutional costs of inflation?

If expected inflation increases:

Generally, in the United States today, goods inflation:

Suppose the money supply is $8 trillion and nominal GDP is $14.2 trillion. What is the velocity of money?

If inflation is highly volatile, money is:

Asset price inflation can be a problem because it:

According to the quantity theory of money, if the money supply increases by 12 percent, then in the long run, prices go:

Refer to the graph shown. If actual inflation is 12 percent and expected inflation is 6 percent, the economy will be at point:

Asset deflation generally:

Unemployment rates above the target rate of unemployment lead to:

Who wins and who loses when there is an unexpected inflation? Explain and give two examples - one dealing with wages and other dealing with interest rates.

Asset inflation tends to hurt those who save in risky assets.

According to the quantity theory of money, persistent inflation can only be caused by:

Economists who believe in the quantity theory of money argue that:

Along the long-run Phillips curve, inflation and expected inflation are:

Before the financial crisis of 2008:

Suppose you sell surfboards for a living, and you expect the price of surfboards to increase at the same rate as inflation; you adjust your prices accordingly. If this does not occur, then it must be true that:

The higher the rate of inflation, the lower the:

As the economy moves to the right of the long-run Phillips curve, inflationary:

Explain the difference between the distributional effects of asset inflation from the distributional effects of goods inflation.

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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